Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

PRIVATE BUSINESS

CITY OF LONDON (WARD ELECTIONS) BILL (By Order)

Order for further consideration, as amended, read.

To be further considered on Wednesday 16 February.

Oral Answers to Questions — NORTHERN IRELAND

The Secretary of State was asked—

Security

Mr. Tony Clarke: What recent progress has been made to create a more normal security environment. [107673]

Mr. Owen Paterson: If he will make a statement on the security situation in Northern Ireland. [107675]

The Minister of State, Northern Ireland Office (Mr. Adam Ingram): The security strategy paper that was published by my right hon. Friend the Secretary of State on 22 December 1999 outlines the progress made and the further steps that the Government intend to take towards achieving normality, depending on the threat level. In assessing that threat level, we will act on the professional advice of the Chief Constable of Northern Ireland and our security advisers. I want to make it clear that we will not relax our guard. The safety of the public remains at all times paramount.

Mr. Clarke: I am grateful to my right hon. Friend for that reply and particularly welcome the publication of the Government's strategy. Following the bomb attack in Irvinestown, will he ensure that, while working towards a more normal security environment, we redouble efforts to ensure that those who are working outside the peace process are swiftly brought to justice?

Mr. Ingram: Obviously, the attack in Irvinestown should be and was rightly condemned by everyone associated with taking forward normalisation in Northern Ireland. It was condemned across the board by political parties and others. In taking forward the process, we must ensure that we do not drop our guard. Even with all the successes of the Garda Siochana in the Republic of

Ireland and of the RUC, there are clearly people who are intent on carrying out such actions. We must ensure that they do not succeed in those acts.

Mr. Paterson: The Minister says that the safety of the public remains paramount, but yesterday the Northern Ireland Human Rights Bureau told me that, since the agreement, there have been 13 murders, 147 shootings and 422 beatings, as well as nearly 1,000 armed bank robberies in which 3,000 members of the public were held up at gun point. Is it sensible to continue to plan the break-up of the RUC and to release murdering terrorists?

Mr. Ingram: The hon. Gentleman would do better to rely on official statistics, rather than the source that he quoted. He has got it totally wrong.

Mr. Paterson: Which one is wrong?

Mr. Ingram: The hon. Gentleman could easily ask written questions to gain such information, but I personally undertake to ensure that he is provided with the accurate statistics. It is not the case that we intend to break up the RUC, as the hon. Gentleman says. I remind him that the future of policing in Northern Ireland was part of the Good Friday agreement. I assume that the hon. Gentleman supports that agreement. If so, he should give a fair wind to the difficult decisions that we have to take on the future of policing there.

Mr. David Trimble: May I refer the Minister to the Irvinestown bomb incident? I am aware that, in official circles, it is thought that the Real IRA, based around Dundalk, is more dangerous than Continuity IRA, which is based around the Fermanagh borders. This is the third bombing in Fermanagh by Continuity IRA. Consequently, there needs to be particular vigilance on the Fermanagh borders. Does the Minister agree that nothing could be more foolish than to decide now to demolish the patrol bases on the Fermanagh border? That incident shows the clear need to retain those patrol bases. The suggestion that the bases should be demolished as a political gesture, which has been made from time to time, should now be dropped entirely.

Mr. Ingram: Any bombing incident or killing by any dissident group has to be condemned whatever happens in Northern Ireland. Of course, we had the tragic circumstances of Omagh and there have been other incidents during the peace since the Good Friday agreement was agreed by the various parties who signed up to it. We have always said that this is not a perfect peace. We have always highlighted the potential dangers contained within it. I take note of what the right hon. Gentleman says, but he will understand that Ministers and the Secretary of State will always act on any matter—either the specific matters that he raised or the wider agenda—on the basis of the best advice from the Chief Constable and our security advisers.

Mr. Eddie McGrady: Would the Minister agree that the commencement of decommissioning would be a great asset in the pursuance of normal security? Does he also agree that that is the dear and earnest wish of all sections of the community in Northern Ireland and these isles in general? Does he agree


that the default to decommissioning precipitated the suspension of the Northern Ireland Assembly? Can he explain whether, in his opinion, that default is a default in respect of the Good Friday agreement, the Mitchell review or the artificial deadline set by the Ulster Unionist party for its council meeting next Saturday?

Mr. Ingram: We had a very thorough-going debate on that issue yesterday, following last week's statement by the Secretary of State, and my hon. Friend made a significant contribution to that debate. We have a situation that we now have to deal with. Although there is a very real lack of confidence in various aspects of the way forward under the Good Friday agreement, I know that, like me, my hon. Friend believes that decommissioning and normalisation should happen, and that, in many ways, the two will go hand in hand. The more normalised Northern Ireland becomes, the greater will become the pressure on those who want to use the bomb and the bullet not to do so. Their communities will put that pressure on them. I am sure that the issues raised by my hon. Friend will continue to be addressed in the coming days.

Mr. Lembit öpik: In the context of normalisation, will the Patten recommendations on police be implemented even if the Assembly is suspended?

Mr. Ingram: We have made it clear that the Patten recommendations, which have now been analysed and proposed by the Secretary of State, are part of the Good Friday agreement. We have said that we want to continue with the Good Friday agreement. Therefore, the simple answer to the hon. Gentleman's question is yes.

Mr. Andrew MacKay: Does the Minister accept that, after the bombing at Irvinestown on Sunday, there must be one absolutely clear message from both sides of the House to the men of violence—that they will never, ever succeed, and that what they are doing is totally counterproductive to achieving what they want?

Mr. Ingram: I share that sentiment with the right hon. Gentleman, and I am sure that every hon. Member wants decommissioning. The sentiment was also expressed in the Good Friday agreement. It is also what the people of Northern Ireland and of the Republic of Ireland want. They want a peaceful future and an end to the violence that they have known for the past 30 years.

Mr. MacKay: Does the Minister accept that, after Irvinestown and other incidents, when there is very clearly still a terrorist threat, it would be quite wrong to implement recommendations in the Patten report that are security sensitive? Will he now give a guarantee to the House that those particular recommendations will not be implemented until there is no longer a terrorist threat in Northern Ireland?

Mr. Ingram: I am not so sure that the right hon. Gentleman has heard the answers that have been given by Ministers before; if he has, he has not absorbed them. We have made it clear that the threat level always has to be taken into account. The Secretary of State made that clear in announcing the way forward on the recommendations flowing from the Patten report. Clearly, we have to take

the threat level into account, and we do so on the best security advice available. We have to take that advice into account. We are also talking about a specific time scale—immediately, medium term or long term—and judgments will be made as we progress on the issue.

Terrorist and Paramilitary Violence

Helen Jones: What discussions he has had with the Office of First and Deputy First Minister relating to victims of terrorist and paramilitary violence. [107674]

The Minister of State, Northern Ireland Office (Mr. Adam Ingram): I had a constructive and positive meeting with the First and Deputy First Ministers on Monday 31 January to discuss how victims' issues can be best addressed. It was agreed that a co-ordinated approach is essential to ensure that victims are treated with the respect that they deserve.

Helen Jones: I thank my right hon. Friend for that reply. Does he agree that, in the past 30 years, there have been too many victims and too many damaged people, both in Northern Ireland and on this side of the Irish sea? Will he assure those victims and their families that, through this very difficult time, both he and those with whom he is in discussions will redouble their efforts to ensure a lasting peace in Northern Ireland—which is what most of those victims and their families want?

Mr. Ingram: I do not think that I could add very much to the sentiments expressed by my hon. Friend, who has articulated both past events and the problems associated with victims and survivors of the violence. The best way forward is to achieve a lasting peace, so that we have no more such victims or survivors.

Mr. Michael Colvin: While I condemn all acts of terrorism in Northern Ireland, may I ask the Minister to acknowledge that much of the money that was collected by the Noraid organisation, in North America, was to help the victims of terrorism in Northern Ireland, but that, more often than not, that aid found its way into the IRA's hands to buy arms, thereby creating victims of terrorism in Northern Ireland? Would there be merit in considering an extra payment to the victims of terrorism in Northern Ireland pro rata for the arms surrendered, thereby giving an incentive to both sides to do so?

Mr. Ingram: We are always prepared to listen to new and innovative ideas, and that suggestion has not been put to me before. It would be hard to quantify that proposal, but, as the Minister with responsibility for this issue, I would be prepared to look at such ideas to see whether there is a practical way forward. I thank the hon. Gentleman for his suggestion.

Mr. Jeffrey Donaldson: Does the Minister agree that the best way to ensure real peace in Northern Ireland and to ensure that there are no more victims is to take the arms out of circulation and


to have them decommissioned? In the absence of decommissioning, surely it would be wrong to hurl further insult upon the hurt of the victims of terrorist violence by continuing with the early release of terrorist prisoners, when those terrorist organisations are failing to deliver on their obligations under the agreement.

Mr. Ingram: We have always made it clear that one of the most difficult aspects of the agreement was the early release of prisoners. We always hoped that more progress would be made on a parallel basis on all other aspects of the agreement. It is a vexed and difficult question and, as the Minister who has to deal regularly with victims and survivors of terrible acts, I well understand the sentiments expressed by the hon. Gentleman. I suggest to him that he could serve the interests of those victims and survivors better by working alongside his right hon. Friend the Member for Upper Bann (Mr. Trimble) to bring about a lasting peace in Northern Ireland, and by helping in the efforts that the right hon. Gentleman is making in support of the Good Friday agreement.

Mr. Harry Barnes: Has the Minister thought beyond decommissioning, as residual punishment beatings, exilings and intimidations will still take place? People will have difficulty in reporting these incidents to the RUC and the state because of fears of intimidation. Would not the setting up of an independent anti-intimidation unit with international support alert us to the problems of continuing gangsterism? Would that be helpful in terms of developing democracy in Northern Ireland?

Mr. Ingram: When we talk about moving towards a normalised society, we do not mean that it will be a criminal-free society, as that is not the nature of any society now. We must ensure that the RUC and the other agencies of the Government with responsibility for tackling violent crime have all the means at their disposal, so that the victims of violence and those who may wish to give evidence against those carrying out such acts have the full protection and support of all the agencies of the state.

Mr. Robert McCartney: How can the Government's ethical policy towards Austria in relation to the inclusion of Mr. Haider's party in Government be equated with the policy pressurising democrats of all descriptions to serve in an Executive with representatives of a terrorist organisation that remains armed and has murdered 2,500 British citizens?

Mr. Ingram: The hon. and learned Gentleman is not easily pressured. Usually, he takes great umbrage when he is pressured, so I would never seek to pressure him into doing anything. The establishment of the Executive was agreed by the parties that supported the Good Friday agreement, which itself was supported by the vast majority of people in Northern Ireland. I should have thought that he, as a democrat, would be prepared to bow to the wish of the majority.

Thanksgiving Square

Rev. Martin Smyth: What discussion he has held with the Ministers and officials of the Northern Ireland Assembly concerning Thanksgiving square. [107676]

The Parliamentary Under-Secretary of State for Northern Ireland (Mr. George Howarth): Neither my right hon. Friend the Secretary of State nor I have had any discussions with Ministers or officials of the Assembly regarding this matter.

Rev. Martin Smyth: I am sorry that that was not a more positive response, although I understand the reasons. Does the Minister accept that the Secretary of State for Culture, Media and Sport had appointed a lead person to give the funding? That person claimed to be dealing with the Arts Council, and then—having held those involved spinning for a long time—finally said that there was no money. Was that because the Arts Council is more concerned about performing arts than other arts? Does the Minister accept that Thanksgiving square—proposed by Jews, Muslims, Hindus, Christians and others—would be useful in finishing the waterfront?

Mr. Howarth: While I agree with the hon. Gentleman that the project is undoubtedly very worth while and has the wide support that he describes, matters relating to charities and funding for such projects now fall under the auspices of the devolved Administration. However, I note what he says and I accept entirely that the development would be very desirable.

Decommissioning

Mr. David Ruffley: What progress has been made on the decommissioning of arms and explosives. [107677]

The Secretary of State for Northern Ireland (Mr. Peter Mandelson): The Independent International Commission on Decommissioning made a further report to the British and Irish Governments on Monday 31 January. As I said to the House on 3 February, all the main paramilitary groups on ceasefire are now engaged with the commission, but there has not yet been decommissioning of arms by a major paramilitary group. We and the Irish Government continue to work intensively to secure the further progress on decommissioning that is essential to maintain the confidence required to sustain the devolved institutions.

Mr. Ruffley: Will the Secretary of State end the early release of terrorist prisoners if there is no decommissioning this week and the Assembly is suspended?

Mr. Mandelson: No, I will not, because the issue of prisoner releases is governed by other considerations and other legislation. I am obliged to keep under review permanently the issue of ceasefires, because it is by that that I judge the continuation of the prisoner release scheme.


I can assure the hon. Gentleman and other right hon. and hon. Members that I will keep those ceasefires under constant scrutiny.

Dr. Norman A. Godman: Is my right hon. Friend in a position to estimate when he is likely to receive a second report from General de Chastelain? Will my right hon. Friend say from the Dispatch Box that he will resist the demands made in some quarters that the shelving of the Patten report and its recommendations should be part of the discussions?

Mr. Mandelson: I certainly echo what my right hon. Friend the Minister of State has already said on that subject. The Patten commission's proposals and the decisions that we have taken about them stand on their own merits, and while I will consider the nature and speed of the implementation of Patten's recommendations in accordance with the security threat, as a matter of principle my view is that we should continue with implementation.
In answer to my hon. Friend's first question, there may well—as General de Chastelain and his colleagues have already indicated—be a further report from the decommissioning body before the end of this week. In that context, I would appeal to the leaders of all the political parties in Northern Ireland not to close their minds to any further developments. They should keep alive the chance of a solution to the difficulties we are in, even at this late stage. Nobody wants any of the political parties to walk away from the peace process, because we want this to work. It is their duty to the public whom they represent in Northern Ireland not to extinguish hope that we may yet find a solution, even at this eleventh hour.

Mr. William Thompson: The Government keep talking about the voluntary act of giving up weapons, but should they not be talking about the mandatory act of giving up weapons? Surely talking about the process being voluntary weakens the Government's whole case. Furthermore, given the good relations that we are told now exist between the British and Irish Governments, what representations have the Government made to the Irish Government to find out what they know about the location of arms dumps in the Republic of Ireland? Have the British Government asked that question? If they have had any positive answers, what representations have they made to the Irish Government to raid those dumps and take out those arms?

Mr. Mandelson: In answer to the hon. Gentleman's first question, I do not have any power to force anyone to do anything. Just as devolution and entering the Executive and institutions were voluntary acts by the political parties, so too is decommissioning. I would just say this to all the paramilitaries, and to the IRA in particular. Nobody is asking for surrender by the IRA; nobody is demanding that humiliation be heaped on the IRA. If politics is to work, and if we are to see the decommissioning that is an essential part of the peace process, there must be certainty and there must be

definiteness, if confidence in all the institutions is to be rebuilt. I hope that the IRA will understand this need and, even at this eleventh hour, respond in a constructive way.

Mr. David Winnick: Will my right hon. Friend make a distinction between those of us who are very much in favour of the Good Friday agreement, who want decommissioning to take place and who understand the difficulties that the British and Irish Governments face, and the political dinosaurs who are totally opposed to the Government and use decommissioning only as a way of trying to destroy an agreement that they never wanted in the first place?

Mr. Mandelson: I have some sympathy with what my hon. Friend says. Everyone realises that if the peace process is to operate properly, if politics in Northern Ireland is to work, that must involve everyone. Everyone has a stake, and everyone's commitment is equally essential. If we are to rebuild the trust and confidence that we need for the institutions to work, they must enjoy the confidence of both traditions in Northern Ireland. We cannot sustain these institutions with the confidence or the support of one tradition alone. That is why I say that it is very important indeed that the Good Friday agreement as a whole must be implemented if confidence in the institutions is to be rebuilt.

Mr. John M. Taylor: Will the Secretary of State give an absolute guarantee that if there is no actual decommissioning by the end of this week, he will suspend devolution on Friday?

Mr. Mandelson: I have already made it absolutely clear that if it needs to be done we will, with a very heavy heart, put on hold the operation of the Executive and the institutions. I think that the hon. Gentleman and other Members of the House would agree that most people in Northern Ireland would respond to that with a deep sense of despair. They like their Executive; they like the institutions. I have to say to the hon. Gentleman that if we do not do that, the alternative would be worse. If we simply allow the Executive and the institutions to stagger on without the cross-community support that they need to survive, they are likely to shatter irreversibly. I simply will not stand by and allow that to happen. If it is necessary to do so, we will put these institutions on hold in order to preserve them, not to annul them.

Police Force

Mr. Gordon Prentice: When he plans to meet his policy objective of the Northern Ireland police having broad parity in terms of the religious affiliations of its officers. [107678]

The Minister of State, Northern Ireland Office (Mr. Adam Ingram): The Government's aim is a police service that is representative of the community in Northern Ireland and enjoys widespread support from that community. The Patten report proposes measures designed to quadruple the proportion of Catholic officers


in the police over a 10-year period. As my right hon. Friend the Secretary of State announced on 19 January, the Government have accepted these measures.

Mr. Prentice: The Secretary of State said just a few moments ago that the Patten recommendations stand on their own merit. That is good, because yesterday the right hon. Member for Upper Bann (Mr. Trimble) gave the impression—and here I paraphrase—that, with the suspension of the Assembly, the Patten report would be put into cold storage. Is it not the case that a situation in which 92 per cent. of police officers in Northern Ireland are Protestant and 8 per cent. are Catholic is not sustainable in the long term, and that we need to implement the Patten recommendations?

Mr. Ingram: I made clear in an earlier answer, and my right hon. Friend has made clear in his answers, the way in which we intend to proceed with the recommendations of the Patten report.

Mr. William Ross: Is the Minister aware that, as intimidation has declined—[Interruption.]

Madam Speaker: Order. The House must come to order. The Minister cannot hear the question. Speak up, Mr. Ross.

Mr. Ross: Is the Minister aware that, as intimidation from terrorist organisations, principally the IRA, has declined, the number of Roman Catholics applying to join the Royal Ulster Constabulary has risen to more than 20 per cent? In the light of that welcome development, and assuming that the quality of applicants is equal, when might broad parity be reached without positive discrimination in favour of Roman Catholic applicants?

Mr. Ingram: I am sure that even the hon. Gentleman wants a police force that represents the wider community. Reaching parity depends on several circumstances, one of which he alluded to. We want to sustain the important developments that have taken place in recent months and to increase the number of people from the minority community who are applying and successfully becoming police officers. That will help to better Northern Ireland society in future.

Oral Answers to Questions — PRIME MINISTER

The Prime Minister was asked—

Engagements

Mrs. Linda Gilroy: If he will list his official engagements for Wednesday 9 February.

The Prime Minister (Mr. Tony Blair): This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall have further such meetings later today.

Mrs. Gilroy: Does the Prime Minister recollect that many of the hundreds of public servants whom he met in

Plymouth last week made it plain that they want more funding for public services? Would a binding policy on tax take for the whole of a Parliament lead to savage cuts in public services? Is that why at least one senior Tory Member has described that policy as mad?

The Prime Minister: Of course that tax guarantee would mean cuts in basic public services, health and schools—[Interruption.] There is nothing quite so ludicrous as the push-me-pull-you double act between the Leader of the Opposition and the shadow Chancellor over the past few days. This morning, the shadow Chief Secretary told us unequivocally that they would—

Mr. Stephen Day: It has nothing to do with you.

The Prime Minister: The shadow Chief Secretary said that the tax guarantee stood. That does have something to do with the person sitting opposite me. When he gets up, will he tell us whether the tax guarantee stands? Yes, or no?

Mr. William Hague: The tax guarantee stands, and it will continue to stand. As the Prime Minister has had a straight answer from me, can we have some straight answers from him? That would be a novelty.
When archbishops, cardinals, the Chief Rabbi, the Muslim Council, Conservative Members of Parliament, many Labour Members, the chief inspector of schools, former Labour Cabinet Ministers, a majority of the Prime Minister's reformed House of Lords and the vast majority of mainstream opinion in the United Kingdom believe that the Government are wrong to abolish section 28, will the right hon. Gentleman listen to them and drop the whole idea?

The Prime Minister: No, I will not, for the reason I shall give in a moment. First, however, let me point out that the previous Government decided in 1994 guidance that section 28 did not apply to schools. The idea that has been put about in parts of the press that repeal is about gay sex lessons in schools and all the rest of it is nonsense.
Section 28 is being repealed because of the information given to us and the pleas made to us by such organisations as the National Children's Bureau, the National Association of Head Teachers, the British Medical Association and the Royal College of Nurses. It has nothing whatever to do with some of the nonsense that we have heard over the past few days. It is intended to ensure that teachers and others are able properly to give children information that they need. Although the right hon. Gentleman may wish to exploit the issue for the Conservative party's purposes, I believe that our country is more tolerant than he gives it credit for.

Mr. Hague: We all believe in a tolerant society. Many of those organisations to which the Prime Minister referred have talked about bullying in schools. However, his own chief inspector of schools said:
My own experience is that there is no evidence that section 28 has had a negative effect on teachers' ability to deal with bullying. No head teacher has raised it with me in all the school visits I have made.


If section 28 does not prevent teachers from acting, will the Prime Minister answer a question that many people want to ask him? What is it that he wants to see taught in classrooms that cannot be taught now?

The Prime Minister: It is nothing to do with teaching children in classrooms; it is to do with answering their questions. I heard what the chief inspector of schools said, but the evidence presented to us by organisations representing children and representing teachers is that, in some cases, the section did make a difference. We have, therefore, decided to replace it with proper guidance for schools.
There are two different types of concern over this matter. There are those expressed by churches and others—in the House of Lords and elsewhere. We shall listen to those concerns; indeed, we have already done so. My right hon. Friend the Secretary of State for Education has indicated that he will introduce guidance that will address those sensible, legitimate concerns.
Another aspect of the opposition has to do with exploiting anti-gay feelings. Let us be quite open about that. Those are the opponents I intend to take on.

Mr. Hague: In all the nonsense that the right hon. Gentleman has come out with over the past three years, he has never beaten that. If he wants to listen to people, he would drop the idea. The debate has become more than a debate about a clause in a local government Bill; it is about tolerance being a two-way thing in this country. It is about whether millions of parents have the right to determine what their children are taught, and about whether the mainstream majority has the right to have its views and values respected, or whether taxpayers' money can be commandeered by a Government who have no respect for that. Does the right hon. Gentleman not understand that the debate is, indeed, about tolerance? It is about the tolerance demanded by the mainstream majority that its views and values be respected.

The Prime Minister: The right hon. Gentleman may fool some of those sitting on the Opposition Benches with those remarks, but he will not fool many people. As I have just pointed out, since 1994—when he was a member of the then Conservative Government—section 28 does not apply to schools. In relation to sex education, parents are already perfectly entitled—and will remain entitled—to withdraw their children from any of those lessons. Furthermore, teachers and governors will decide what is taught in their individual schools.
All that is clear, although one will not read it in some of the press comment. It has been made clear many times over the past few days. What is also clear, however, is that part of the explanation why this matter is being whipped up has nothing to do with tolerance, or with teaching children properly in schools; it is to exploit the issue for the political reasons that I have given. If the right hon. Gentleman will not listen to me, I would have hoped that he would listen to some of the more tolerant voices—even in his own party.

Mr. Nigel Griffiths: Will my right hon. Friend confirm that the working families tax credit benefits 1.5 million families by an average of £24 a week? Does he agree that, when the

Tories have mastered that simple arithmetic, he can tell Archie to tell Michael to tell William, and that we shall see another U-turn?

The Prime Minister: If anything indicated the extraordinary weakness of the Leader of the Opposition's position, it is that the shadow Chancellor announces their policies on such issues at Question Time. Let us hear some more answers from them. Are they against £100 for the pensioners? Are they against the new deal for the unemployed? Are they against child benefit increases, free eye tests for pensioners or extra money for rural bus services?
Today, the Opposition have recommitted themselves to the tax guarantee; they will be impaled on it at the next election.

Mr. Charles Kennedy: Has the Prime Minister had a chance to read the Liberal Democrat early-day motion? [Interruption.]

Madam Speaker: Order. Mr. Kennedy, please proceed.

Mr. Kennedy: The spontaneous reaction from those on the Labour Benches confirms that at least 85 Members in the parliamentary Labour party have read the motion—because they signed it. We are very grateful for their support. It describes the 75p uprating for pensioners as inadequate. Will the Prime Minister therefore take this opportunity to tell 85 of his right hon. and hon. Friends why they are wrong and why 75p is adequate?

The Prime Minister: It is not the case that all that pensioners are getting from the Government is a 73p increase. The £100 is an increase that pensioners are getting; the minimum income guarantee helps many of them; and pensioners over the age of 75 will get free television licences from autumn 2000. There are also, of course, free eye tests, the national concessionary bus fares scheme and the many other things that we have done for pensioners in this country.
We have already exposed the Conservatives' tax guarantee. I think that it is about time that we heard from the Liberal Democrats what their tax guarantee is, although the only guarantee that they seem to be making in respect of people's taxes is that they will go up.

Mr. Kennedy: On the issue of guarantees and of pensioners, will the Prime Minister acknowledge, as he did on his visit to the south-west last week, that many pensioners are concerned about the issue that I raised with him last week—the future of the rural post offices? He will recall that he said to me then that subsidy was no way forward for guaranteeing the future of threatened post offices. Yet, 24 hours later, he told the editor of the Western Daily Press:
look, you may need a subsidy to allow this rural post office to function".
It is reasonable to ask what the policy of the Prime Minister is. Is it Wednesday's policy or is it Thursday's policy?

The Prime Minister: It is the same; I did not say that. I said that it would be wrong to stop the switch-over from paying benefits in cash to paying them into a bank account.


It would be absolutely absurd to have the technology to do that, to have invested in it and then to waste that technology. In respect of the rural post offices, I also put forward a number of things that will help them to deal with the new situation. If the Liberal Democrats are really saying that even if we have the technology to pay money direct into people's bank accounts, we should not do so, I disagree with them.
On pensioners, I am delighted that the authoritative source of my right hon. Friend the Secretary of State for Social Security is sitting to the left of me. He tells me that, in the Liberal Democrats' manifesto—a nod or a shake of the head will do—they committed themselves only to uprating the pension in line with prices, not earnings.

Maria Eagle: While considering the future direction of Government health policy, has my right hon. Friend had an opportunity to read a recent edition of the magazine Public Finance, in which an adviser to the Conservative's Front-Bench health team says that
in the end we may have an NHS only for the poor, a service for the people who earn less than a certain amount." 
Will my right hon. Friend assure the House that his Government will rebuild and modernise the NHS while maintaining it as a universal service free at the point of use whereas the Conservative party would privatise it and force people to pay for private medical insurance?

The Prime Minister: We will not privatise the health service; we will rebuild it. My hon. Friend is right to draw attention to the remarks of the Conservatives' adviser. It all stems from the tax guarantee; they cannot make it work unless there are big cuts in health service provision. However, it is not just their adviser who has expressed such a view. Their health service spokesman, when describing their policy, said within the past few days:
So people would look to the NHS to provide them with service when they had serious life-threatening conditions, and would look to their private insurance to help them with those things where the NHS had to ask them to wait".
This is their Trojan-horse policy, and it is our job to make sure the country knows it.

Sir Archie Hamilton: As it was only the strong-arm tactics of the Prime Minister that delivered the job of the First Secretary of the Welsh Assembly, will the Prime Minister now tell him and members of the Welsh Labour party to abide by the decision of the vote of no confidence, whatever the outcome might be?

The Prime Minister: There is a no confidence motion in the Welsh Assembly, but I believe that the Welsh First Secretary is doing an excellent job and so does the Labour party. Let us be clear what the issue is. What we have in the no confidence motion is the nationalists and the Tories joining together.
The leader of the Tory party in Wales is saying that he wants an immediate extra £180 million from the Treasury over and above the Barnett formula. That brings me back to the tax guarantee. When will the Conservatives say whether they want the tax guarantee or the £180 million

of extra spending? Their man has not resigned. Which is it—the tax guarantee or the spending? We need an answer.

Mr. Martyn Jones: Is the Prime Minister aware that Carlsberg-Tetley proposes to close the Wrexham Lager Beer Company, which is just outside my constituency? The company was established in 1882 and is the oldest lager brewery in Britain, not much younger than Carlsberg itself. Given that Carlsberg makes great play of its history, does my right hon. Friend agree that if it goes ahead with the closure and does not enter into negotiations with the local council to continue brewing on the site, Carlsberg risks being considered by the people of Wrexham to be probably the worst lager in the world?

The Prime Minister: Of course I am aware of the distress that those job losses may cause, but I know that my hon. Friend is working with others to try to put together a package for his constituents, and I very much hope that it is successful.

Mr. Peter Viggers: Is the Prime Minister personally aware of the depth of the crisis in the defence medical services caused by the closure of the only military hospital, at Haslar in my constituency? Is he aware that, following a massive, vigorous local campaign, the hospital is now to be kept open by the national health service? Will he take the advice of almost all those who have specialist knowledge and retain Haslar as a centre for defence medicine?

The Prime Minister: I would have hoped that the hon. Gentleman would congratulate us on the work that we have done on the matter. We are now considering how to make the appropriate provision of critical care services, and we are spending an extra £140 million over the next five years to help to rebuild the defence medical services. Again, it all comes back to money. People in the hon. Gentleman's constituency have been asking us to spend more money on the health service; we are, but we cannot do that and have a tax guarantee at the same time.

Dan Norris: Last Friday, somebody whom I was at school with, who is currently a nurse, was savagely attacked at a Bristol hospital. She is currently critical and unconscious. The day before, a Kent GP was stabbed in the back at his surgery. Other professions—particularly social workers, but also teachers and those who drive buses and taxis—also face dangers in working with the public. What role do the Government have to play in promoting information, training, safeguards and guidelines on how people who work with the public can best ensure their own safety, especially if by the very nature of their job they have to work face to face with the public?

The Prime Minister: That is indeed a serious problem, which is why last October the Government launched a series of initiatives called the NHS zero tolerance zone. We are investing money in accident and emergency departments and modernisation work specifically for improvements to security and safety for hospital staff and patients. We hope that the additional investment will make a difference. We are also establishing a task force


to take forward a programme of work designed to reduce violence against social care workers. This is a serious problem, and our sympathy and our hearts go out to the individual who was attacked last week.

Mr. Peter Luff: The Prime Minister was quick to remove the Whip from the hon. Member for Glasgow, Govan (Mr. Sarwar), when he was the subject of a police investigation. Why has he not acted with the same speed and decisiveness in the case of the hon. Member for Coventry, North-West (Mr. Robinson)?

The Prime Minister: Let us wait and see what the investigation reveals. As with many of the investigations into my right hon. Friend, it was instigated on the basis of allegations made by Conservative Members of Parliament.

Mr. David Borrow: I am sure that my right hon. Friend saw the Low Pay Commission report this weekend, which demonstrates that there has been no loss of jobs with the introduction of the minimum wage. Will my right hon. Friend welcome the conversion of the Conservative party to support for the minimum wage? Will he also congratulate my constituent, Erica Ledbetter, from Leyland, who won a tribunal case on the minimum wage without being represented by a lawyer or a trade union? Does my right hon. Friend recognise, however, that many of the people who are most vulnerable in respect of the minimum wage need better advice to enable them to take their case to an industrial tribunal?

The Prime Minister: Of course, the Conservatives detest the minimum wage, but they lack the courage of their conviction to get rid of it. A few months ago, the shadow Chancellor called it "an immoral policy", but now they have had to accept it. It is an important reform which we have introduced, and it symbolises a different approach to people in the workplace. We believe that employers can treat their workers fairly and get the best out of them by doing so. That is Labour's way, which the Conservatives now have to accept.

Mr. William Hague: Will the Prime Minister comment on the fact that within moments of his expressing full confidence in the First Secretary in Wales five or 10 minutes ago, news came through to the House that the First Secretary had resigned, before the vote of confidence had taken place? [Interruption.] Will the Prime Minister confirm that that has happened, and if it has, will he confirm also that the next big test of devolution will be the choice of a new First Secretary without any interference whatever from the Prime Minister?

The Prime Minister: The one thing of which we can be sure—[Interruption.]—is that that will not be a Tory.

Madam Speaker: Order. I have had enough of hon. Members calling out from sedentary positions.

The Prime Minister: The no confidence motion was not just accepted by the nationalists, but backed by the Conservatives. Perhaps the right hon. Gentleman will

explain why his leader in Wales is saying that he has a commitment from the Conservative party to fund £180 million above the Treasury block grant. If that is true, how does he intend funding it?

Mr. Hague: All I want to know is whether the First Secretary in Wales has resigned and, if so, why he did so before the vote of confidence, and whether the Prime Minister will undertake not to interfere in any way in the choice of a new First Secretary.

The Prime Minister: The decision is for people in Wales. [Interruption.] What we need to know is why the nationalists and the Tories are in bed with one another—the two wreckers of devolution—one group that wants to separate Wales from the United Kingdom, and the other that supports centralisation. After all the fun and games down at the Assembly are over, the right hon. Gentleman must explain why the Tories are supporting the nationalists' demand for an extra £200 million of public spending.

Mr. Hague: It is no good the Prime Minister dismissing as fun and games serious proceedings in an Assembly which he created and which he campaigned for, about a First Secretary whom he imposed on the Welsh Labour party in the Welsh Assembly. Not only has the Prime Minister forgotten why he imposed the First Secretary—he does not even know whether the First Secretary is in office at this moment. Is the First Secretary still in office? If he is not, will the Prime Minister undertake not to interfere in the election of a successor?

The Prime Minister: The decision is for people in Wales. The fun and games to which I refer is the fact that the Tories and the nationalists are in an alliance together. [Interruption.] Yes, they are in alliance together. Once the fun and games have ended, the right hon. Gentleman will have to explain—

Madam Speaker: Order. Some hon. Members seem to be having apoplexy. The House must come to order. I want to hear what is being said.

The Prime Minister: The nationalists and the Tories are now joined together in a demand for extra public spending. That is the truth, which Opposition Members want to shout down. The Conservative party demands that we spend an extra £200 million in Wales. Why does not the right hon. Gentleman explain how he can demand £200 million more, while maintaining a tax guarantee?

Mr. Jim Dobbin: Has my right hon. Friend read early-day motion 336 tabled by Tory Members, who want the Government to extend private health insurance? Given that two thirds of day beds are taken by people who are over 65, and that the cost of a hip operation can be as much as £7,800, does he agree that anyone who believes that private health insurance can fund the national health service in this country is simply not living in the real world?

The Prime Minister: The Conservative policy, accurately described as a Trojan horse, will mean that people who are over 60 will have to take out private medical


insurance at a cost to many of them of £60 to £80 a week. [Interruption.] Conservative Members can shout as much as they like, but many people will not be able to afford that sort of private medical insurance. It is wrong to expect them to do so. Furthermore, the Conservative policy of giving tax breaks on private medical insurance will mean a deadweight cost that would wipe out the entire nurses' pay claim for next year just for those who already have private medical insurance. People know that that will happen if they vote Tory at the next election.

Mr. Richard Page: A year or so ago, I invited the Prime Minister to visit my constituency to explain the soaring waiting lists in hospitals, but he refused. He solved that problem by having a waiting list for a waiting list. I again invite him to my constituency to visit the governors of some successful former grant-maintained schools, whose budgets are being cut. Can he advise them whether they should sack teachers, or put a levy on parents? After all, I remind the Prime Minister of the importance of education, education, education.

The Prime Minister: That is why we are putting the largest investment ever in education this year and in the next two years. Again, Conservative Members are asking for more money. It is time that they made up their minds about what they want. They ask for more public spending in Wales, on the health service and on schools. In the past week, their defence spokesman asked for more defence money; their agriculture spokesman asked for more agriculture money; and the local government spokesman wants more for local government. The Leader of the Opposition and all Conservative Members will have to decide whether their policy is for a tax guarantee, or a cuts in public services guarantee.

Mr. Chris Pond: Given the rather childlike behaviour we have witnessed in the Chamber, I ask my right hon. Friend about his commitment to halve child poverty in 10 years and to eliminate it in two decades. Given that 4 million of our children were in poverty when he took over, he has set quite a challenge. Is he confident that the Government can fulfil that commitment?

The Prime Minister: I believe that we can fulfil it, partly because of the measures on child benefit, the new deal, which puts young people back in work, and the working families tax credit, which will lift approximately 800,000 children out of poverty. We can already be proud of our record in our first term. The country will be reminded time and again that our measures, such as child benefit, the £100 for pensioners, the new deal and the working families tax credit are opposed and would be taken away by the Conservative party.

Mr. Nigel Evans: I want to ask a simple question. Will the Prime Minister guarantee that neither he nor Millbank will interfere with the selection of the new Labour leader of the National Assembly for Wales?

The Prime Minister: Given the state of the Conservative party, they can leave my party to me. Whatever happens in Wales, questions about public spending have to be answered. The entire case of the nationalists, supported by the Tories, that they cannot afford objective 1 spending is false. Everybody knows that it is false, and that Conservatives and nationalists cannot possibly afford the extra £200 million that they demand. Whatever happens in the next few days, people in Wales would do better to stick to a Labour party that can deliver extra spending rather than a Tory party that would cut it.

Mrs. Louise Ellman: How does the Prime Minister intend to increase and publicise the Government's considerable successes in regeneration and employment in inner-city areas such as Liverpool?

The Prime Minister: Long-term youth unemployment has halved under this Government and some 200,000 young people are back in work. Those young people had no hope and opportunity of a job before. They now have a job. Everyone should remember that these policies are fair, but they also improve the state of the economy. As a result of the changes that have been made, we are cutting the costs of economic and social failure from the level we inherited from the Conservatives by £3 billion a year. That is then money we can spend on schools and hospitals. That is the Labour way, not the Tory way of cuts and social exclusion.

Points of Order

Mr. Nigel Evans: On a point of order, Madam Speaker. Given the Prime Minister's inadequate responses today—[Interruption.]

Madam Speaker: Order. I decide whether it is a point of order. Let me hear what it has to do with me.

Mr. Evans: The Prime Minister's responses today were inadequate and there may be the implications for the House. It is too soon for you to have received a request from the Secretary of State for Wales to make a statement today on the National Assembly for Wales, but should he make one would you please accede to it as soon as possible so that we may question him about the involvement of the Prime Minister and Millbank in the appointment of a new leader of the Labour party in the Assembly?

Madam Speaker: The hon. Gentleman knows that the Speaker has no authority in respect of whether Secretaries of State want to make statements. They make them when they wish to, without consulting me. They just tell me, and that is how it should be.

Mr. Philip Hammond: On a point of order, Madam Speaker. May I draw your attention to Sessional Order No. 4, which the House passed on Wednesday 17 November 1999? It requires the Commissioner of Police of the Metropolis to keep the roads leading to the House clear and free of obstruction when the House is sitting. You will have noticed the extensive roadworks in Parliament square, which are causing considerable difficulty to Members seeking access to the House. I understand that the Metropolitan police agreed with the contractors that those works should be carried out now without consulting Officers of the House, who were merely informed after the event. Will you instruct the Serjeant at Arms to discuss the matter further with the Metropolitan police to establish whether the Commissioner has carried out the order's requirements?

Madam Speaker: I understand that traffic disruption in and around Parliament square is on account of cabling work. The Serjeant at Arms warned Members of those works and they should be prepared for delays until early March. The Sessional Order to which the hon. Gentleman refers concerns matters such as demonstrations and processions, which come under the responsibility of the Commissioner of Police of the Metropolis. It does not cover roadworks, which are of course the responsibility of Westminster city council. However, I am greatly concerned at the significant disruption in Parliament square and its impact on Members' ability to reach the House expeditiously. I regard it as most important that there is proper liaison, of which the hon. Gentleman spoke, and consultation between the council and our House authorities on such matters. I shall review the current arrangements in that connection so that we have better liaison as to when repairs can be carried out in that area. For example, we could mutually agree that they could be done during a parliamentary recess.

Dr. Phyllis Starkey: On a point of order, Madam Speaker. Is it in order for the

hon. Member for Lichfield (Mr. Fabricant) to accuse another hon. Member—in this case, the Prime Minister—of lying in the House?

Madam Speaker: Certainly that is totally unacceptable in the House. I did not hear such a thing, otherwise I would have asked the Member concerned to withdraw it immediately. The hon. Member for Lichfield is here; could he offer me some explanation?

Mr. Michael Fabricant: I made no such statement. If I accused the Prime Minister of lying, of course I withdraw the remark. However, I am not aware of what the hon. Member for Milton Keynes, South-West (Dr. Starkey) is talking about. I can only assume that she is referring to something that occurred during Prime Minister's Question Time. I am sure that the Prime Minister would not have lied, but if he had lied, I would have shouted "Liar".

Madam Speaker: Sometimes tempers in the House are a little more frayed than I would wish them to be. I accept the hon. Gentleman's word.

Mr. William Ross: On a point of order, Madam Speaker. Although you are aware of the content of questions on the Order Paper, you cannot possibly be aware of the supplementary questions during Prime Minister's Question Time. You will recall that questions were asked today about events in the Welsh Assembly. You will also be aware that the Scottish Assembly—

Dr. Norman A. Godman: Scottish Parliament.

Mr. Ross: The Scottish Parliament and the Northern Ireland Assembly have certain devolved functions that are outwith the competence of this House. Madam Speaker, when a question is bounced on you from Back Benchers, how are you to decide whether the issue raised is a matter for this House or for the devolved institutions? Were the questions put today about the Welsh Assembly devolved matters or matters for this House?

Madam Speaker: The questions today were perfectly in order. I always come to the House prepared in my own mind to deal with such supplementary questions. I have good relations with the Presiding Officers of the Welsh Assembly and the Scottish Parliament. We have arrangements whereby we can deal with such matters daily in the event of them coming before us. I assure the hon. Gentleman that nothing that has been said in this House since those areas were devolved has been out of order. I try to watch these matters carefully.

BILL PRESENTED

REGULATION OF INVESTIGATORY POWERS

Mr. Secretary Straw, supported by the Prime Minister, Mr. Secretary Prescott, Mr. Secretary Cook, Mr. Secretary Mandelson, Mr. Secretary Hoon and Mr. Charles Clarke, presented a Bill to make provision for and about the interception of communications, the acquisition and disclosure of data relating to communications, the carrying


out of surveillance, the use of covert human intelligence sources and the acquisition of the means by which electronic data protected by encryption or passwords may be decrypted or accessed; to provide for the establishment of a tribunal with jurisdiction in relation to those matters, to entries on and interferences with property or with wireless telegraphy and to the carrying out of their functions by the Security Service, the Secret Intelligence Service and the Government Communications Headquarters; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow, and to be printed. Explanatory notes to be printed [Bill 64].

Emissions Trading

Mr. Gareth R. Thomas: I beg to move,
That leave be given to bring in a Bill to establish emissions trading; to create an emissions trading authority; to require the corporate disclosure of emissions; and for related purposes.
Emissions trading would be good news for the environment, good news for British business, and good news for British workers. It offers a marriage between a crucial environmental imperative—the need to reduce greenhouse emissions—and the business need for efficient, innovative and cost-effective solutions.
The Kyoto protocol signed in December 1997 demands legally binding targets to reduce the emissions of a basket of six greenhouse gases. Having been included in that historic protocol, emissions trading has arrived on the international stage. It is being considered by countries that have little previous experience of this issue. Indeed, the details of an international emissions trading scheme are already being worked on.
The purpose of my Bill is to establish a domestic emissions trading system to work alongside and supplement the climate change levy, which is a new drive to stimulate renewable energy, and other action to reduce our greenhouse gas emissions. The Bill would require Ministers and Parliament to fix an overall cap on emissions, and would enable the distribution of emission permits, equal to the value of the overall agreed level, to participating businesses.
The Bill would allow the trading of permits between businesses, thus ensuring that businesses can trade off the cost of controlling their pollution with the cost of buying other businesses' spare emission permits. It would establish an emissions trading authority, with representatives from business, the City, environmental non-governmental organisations and academic specialists, to oversee the issuing and trading of emissions permits, monitor a robust verification process and impose penalties for non-compliance with the scheme rules.
The Bill would allow Ministers to require all companies over a certain size to calculate and publish the level of their carbon dioxide emissions. Lord Marshall made it clear in his report to the Treasury in November 1998 that the calculation of emissions from fossil fuel use was relatively straightforward.
The current company law review being carried out in the Department of Trade and Industry is considering environmental reporting, and the Department of the Environment, Transport and the Regions has already published "Guidelines for company reporting on greenhouse gas emissions", which are being used by Wessex Water and CGU to disclose their level of emissions. Firms with more than 250 employees have been consistently encouraged to disclose voluntarily their environmental performance, and the need for monitored and audited reporting to help deliver Kyoto targets has been highlighted by a range of investment organisations and environmental non-governmental organisations, not least the excellent World Wide Fund for Nature.
My colleagues in the Department of the Environment, Transport and the Regions have also strongly encouraged environmental reporting. A shift now to require the


mandatory disclosure of emissions would undoubtedly stimulate further action by businesses to reduce their emissions of carbon dioxide, improve their cost competitiveness and stimulate participation in emissions trading.
The Intergovernmental Panel on Climate Change calculated that a global reduction in carbon dioxide of about 60 per cent. was needed by the middle of the century to stabilise our climate, with a 70 to 80 per cent. reduction by 2050 likely to be necessary for developed countries. Such a reduction will require careful but considerable change in technology and behaviour. Emissions trading, supported in principle by much of big business, would be an additional policy weapon and be part of a wider climate change strategy.
Crucially, emissions trading allows companies to achieve specified reductions in carbon emissions flexibly and cost-effectively Having been allocated a target for reducing emissions, those that can reduce them at least cost can go further than their target and sell the excess to companies that are finding it more difficult or expensive to reach their target. In turn, those that find it difficult to reduce emissions can buy the extra permits from those that have gone further than they needed to, paying someone else in effect to achieve their reduction in emissions. It allows the more environmentally efficient firms to receive a reward in the form of trading profits, and will inevitably stimulate investment in innovative energy-efficient technology. It would also help British companies to develop expertise in emissions trading prior to the launch of an international emissions trading scheme.
An emissions trading pilot was recommended by Lord Marshall in his report to the Treasury in November 1998. The CBI and the Advisory Committee on Business and the Environment have produced the broad outline of an emissions trading scheme backed by a diverse range of businesses and bodies, from British Steel and the Corporation of London through to Cadbury-Schweppes and the Eastern Group.
There is already evidence around the world of successful emissions trading schemes. The largest such scheme is in the United States, addressing emissions of sulphur dioxide and their role in acid rain. Since the scheme's establishment in 1995 the overall total of controlled sulphur dioxide emissions has fallen to 23 per cent. below allowable emission levels. The flexibility offered by trading is estimated to have reduced total compliance costs by between a third and a half.
Similarly, the regional clean air incentives market, or RECLAIM, came into force in January 1994. It is a trading scheme designed to tackle severe air quality problems in southern California. Total stationary source emissions are capped, with the cap declining each year until targets are met, and with participating facilities receiving and trading emission allowances. The cost reductions from using this trading scheme to achieve environmental targets were forecast to be 42 per cent. over the years 1994 to 2000. The indications are that the scheme is already being highly positive.
Closer to home, BP Amoco established an internal emissions trading system in September 1998, trading emissions between 12 profit centres around the world

rather than in one country. The aim is to help the company achieve a voluntary target of a 10 per cent. reduction in greenhouse gas emissions by 2010 compared with 1990 levels. The scheme will be rolled out next year to all the company's business users. The results to date suggest that the environmental benefits can be obtained more cost-effectively than through some other possible measures. Monitoring and tracking are less burdensome than some regulations. Incentives exist within the scheme to achieve more than the minimum, and the scheme has already stimulated more innovation in technology.
In Europe, too, Germany is already engaged in very limited trading schemes. Belgium, Denmark and the Netherlands have also all used a limited form of trading scheme for existing power stations to implement EU limits of sulphur dioxide emissions. The Confederation of Norwegian Business and Industry has also proposed a sulphur trading scheme, in which permits would be allocated to both sulphur emitters and producers of oil products.
Emissions trading is inevitably complex. It poses many difficult questions, not least about how emissions permits are best allocated. But it is increasingly being considered around the world as a serious tool in the drive to lower greenhouse gas emissions. Britain needs to build on the momentum achieved by the work of the CBI and ACBE, and introduce our own focused emissions trading scheme soon.
My Bill would allow businesses to choose whether to join a trading scheme, but, once committed, a business would be committed for a determined length of time, and its participation in the scheme would be on a statutory footing. The scheme would be linked with the climate change levy and the negotiating agreements. A key task of the emissions trading authority would be to ensure that participating companies were delivering sustained reductions in emissions, or paying a price for their eco-inefficiency.
The authority would be required to monitor delivery on emission reduction targets, to enable all organisations to see that the scheme was achieving its environmental objectives. It would be able to commission research to monitor the flexibility and cross-effectiveness enjoyed by participants. It would be required to ensure rigorous monitoring of the quality of emissions data reported by participating companies to maintain the credibility of the scheme.
International emissions trading is coming. Our neighbours and competitors are already being forced to consider introducing it. According to a recent briefing from the Parliamentary Office of Science and Technology,
If the UK began a domestic scheme prior to the introduction of an international scheme it might be able to lead the design and implementation of international emissions trading and even to be the location of the brokerage system that would conduct trading".
That would provide a powerful commercial advantage for our business community. In August last year, Ilex, the energy consultancy, suggested that selling carbon emission permits under an international trading scheme could earn the United Kingdom an extra £700 million a year.
Establishing our own emissions trading scheme would give British business a head start in the coming international emissions market. It would also be a


powerful addition to the policy weapons that are available to help us to achieve our necessary reductions in global greenhouse gas emissions.
Question put and agreed to.
Bill ordered to be brought in by Mr. Gareth R. Thomas, Mr. Andrew Love, Mr. Stephen Hesford, Mr. Stephen Twigg, Mr. James Plaskitt, Ms Karen Buck, Mr. Colin Burgon, Mr. Gareth Thomas, Mr. Phil Hope, Gillian Merron and Mr. Jim Fitzpatrick.

EMISSIONS TRADING

Mr. Gareth R. Thomas accordingly presented a Bill to establish emissions trading; to create an emissions trading authority; to require the corporate disclosure of emissions; and for related purposes: And the same was read the First time; and ordered to be read a Second time on Friday 21 July, and to be printed [Bill 65.1.

Mr. John Bercow: On a point of order, Madam Speaker. May I seek your guidance—not on the subject of lying, on which you have made the position abundantly clear, but on the subject of Ministers who, no doubt entirely inadvertently, give credence to untruths?
I seek your guidance, Madam Speaker, because of two recent and serious examples. The first occurred this afternoon, when the Prime Minister suggested to the House and the country that 200,000 people were in work today as a result of the new deal, although statistics released by the Department for Education and Employment show otherwise.

Madam Speaker: Order. I will not enter into a political argument with the hon. Gentleman. What is the point of order for me?

Mr. Bercow: The point of order, Madam Speaker, is simply this. Given that the information that the Prime Minister inadvertently gave inaccurately was nevertheless inaccurate, and given that the effect of that inaccuracy is unhelpful to millions of people who were watching on television at home, is there any means whereby you can instruct the Prime Minister to come to the House and apologise to the British people?

Madam Speaker: These are political arguments. I fear that the hon. Gentleman is seeking to prolong Prime Minister's Question Time. If he wishes to pursue the matter, he must do so politically. He must do so through the Order Paper, rather than through the Chair.

Financial Services and Markets Bill (Programme)

Ordered,
That the following provisions shall apply to proceedings on the Financial Services and Markets Bill:—

Timetable

1.—(1) Remaining proceedings on Consideration and proceedings on Third Reading shall be completed at today's sitting.

(2) Proceedings on Consideration shall, if not previously concluded, be brought to a conclusion at Nine o'clock.

(3) Subject to sub-paragraph (2), each part of proceedings on Consideration shall, if not previously concluded, be brought to a conclusion at the time specified in the second column of the Table.

TABLE

Proceedings—Time for conclusion of proceedings

Remaining New Clauses; amendments to Clauses 1 to 9 and 11 to 18—One hour after commencement of proceedings on this Order.

Amendments to Clause 19—Two hours after commencement of proceedings on this Order.

Amendments to Clauses 20 to 51 and 53 to 94—Three hours after commencement of proceedings on this Order.

Amendments to Clauses 95 to 203—Four hours after commencement of proceedings on this Order.

Remaining proceedings on consideration—Five hours after commencement of proceedings on this Order.

(4) Proceedings on Third Reading shall, if not previously concluded, be brought to a conclusion at Ten o'clock.

Questions to be put

2.—(1) For the purpose of bringing any proceedings to a conclusion in accordance with paragraph 1 the Speaker shall forthwith put the following Questions (but no others)—

(a) any Question already proposed from the Chair;
(b) any Question necessary to bring to a decision a Question so proposed;
(c) the Question on any amendment moved or Motion made by a Minister of the Crown;
(d) any other Question necessary for the disposal of the business to be concluded;

and on a Motion for a new Clause or Schedule, the Speaker shall put only the Question that the Clause or Schedule be added to the Bill.

(2) If two or more Questions would otherwise fall to be put under sub-paragraph (1)(c) on amendments moved or Motions made by a Minister of the Crown, the Speaker shall instead put a single Question in relation to those amendments or Motions.

Miscellaneous

3.—(1) This paragraph applies if—

(a) a Motion for the Adjournment of the House under Standing Order No. 24 (Adjournment on specific and important matter that should have urgent consideration) has been stood over to Seven o'clock; but
(b) proceedings to which this Order applies have begun before then.

(2) Proceedings on that Motion shall stand postponed until the conclusion of those proceedings.

4.—(1) No Motion shall be made to alter the order in which any proceedings on the Bill are taken.

(2) No dilatory Motion with respect to, or in the course of, proceedings to which this Order applies shall be made except by a Minister of the Crown; and the Question on any such Motion shall be put forthwith.

(3) No debate shall be permitted on any Motion to recommit the Bill (whether as a whole or otherwise), and the Speaker shall put forthwith any Question necessary to dispose of the Motion, including the Question on any Amendment.

5. Standing Order No. 82 (Business Committee) shall not apply to this Order.

6. Standing Order No. 15(1) (Exempted business) shall apply to the proceedings to which this Order applies.

7. Proceedings to which this Order applies shall not be interrupted under any Standing Order relating to the sittings of the House.

Supplemental orders

8.—(1) If any motion is made by a Minister of the Crown to amend this Order so as to provide a greater amount of time for proceedings on the Bill under paragraph 1 of this Order, the Question thereon shall be put forthwith and may be decided, though opposed, at any hour.

(2) If any Motion is made by a Minister of the Crown to supplement the provisions of this Order in respect of proceedings on any Lords Amendments or any subsequent message from the Lords relating to the Bill, such Motion may be proceeded with, though opposed, at any hour and the proceedings shall, if not previously concluded, be brought to a conclusion three quarters of an hour after they have been commenced.

(3) If at any day's sitting the House is adjourned, or if the sitting is suspended, before the time at which any proceedings are to be brought to a conclusion under this Order, no notice shall be required of a Motion made at the next sitting by a Minister of the Crown for varying or supplementing the provisions of this Order.—[Mr. Dowd.]

Orders of the Day — Financial Services and Markets Bill

As amended in the Standing Committee, further considered.

New Clause 2

Matters to be included in orders under section 20

"—(1) The Treasury shall specify each of the activities set out in subsection (2) in any order made by it pursuant to section 20.

(2) The activities referred to in subsection (1) are the following—

(a) providing advice to a consumer on the choice of a manager;
(b) providing advice to a consumer on the performance of assets under the management of a manager;
(c) providing advice to a consumer on asset mix or allocation for a fund;
(d) advising on the structuring or reorganisation of a fund.

(3) References in this section to advice and advising do not include the provision of legal advice.

(4) "Consumer" means a person who uses, or may be contemplating using, the services provided by a manager.

(5) "Manager" means a person who performs the regulated activity of managing investments in the United Kingdom.

(6) "Fund" means an occupational pension scheme, or other assets held under trust.

(7) "Occupational pension scheme" means any scheme or arrangement which is comprised in one or more instruments or agreements and which has, or is capable of having, effect in relation to one or more descriptions or categories of employment so as to provide benefits, in the form of pensions or otherwise, payable on termination of service, or on death or retirement, to or in respect of earners with qualifying service in an employment of any such description or category.".—[Mr. Flight.]

Brought up, and read the First time.

Mr. Howard Flight: I beg to move, That the clause be read a Second time.

Madam Speaker: With this it will be convenient to discuss new clause 34—Transfer to Financial Services Ombudsman of functions of Pensions Ombudsman—

".—(1) There shall be transferred to the scheme operator all the functions and powers of the Pensions Ombudsman established under Part X of the Pension Schemes Act 1993 (as amended by the Pensions Act 1995).

(2) The Treasury may by order—

(a) provide for the transfer of any property, rights or liabilities held, enjoyed or incurred by any person in connection with functions transferred under this section;
(b) provide for the carrying on and completion by or under the authority of the scheme operator of any proceedings, investigations or other matters commenced, before the order takes effect, by or under the authority of the Pensions Ombudsman;
(c) make any transitional, incidental or consequential provision which is necessary or expedient as a result of the transfer of functions under this section;
(d) provide for the substitution of the scheme operator for the Pensions Ombudsman in any instrument, contract or legal proceedings made or begun before the order takes effect.

(3) The Treasury may make regulations providing for—

(a) the transfer to the scheme operator of any staff previously employed in the service of the Pensions Ombudsman;
(b) the terms on which any such transfer shall take place; and
(c) the terms on which the employment of any person previously employed in the service of the Pensions Ombudsman may be terminated.

(4) In this section "scheme operator" means the body corporate established under Schedule 14 to operate the disputes resolution procedure referred to in section 200 as "the ombudsman scheme".".

Mr. Flight: New clause 2 is to a substantial extent a probing amendment. Members will be aware that the roles of different parties in the provision of financial services have changed. Typically, pension fund consultants will advise pension funds on the spread and constitution of their assets among bonds, equities, international assets and domestic assets. They will also advise funds on the appointment of fund managers. Accountants provide similar services to companies and to high net worth individuals. Indeed, lawyers are also providing such advice.
The issue is that, under clause 20, the Treasury will need to specify what constitutes a regulated investment activity. I ask the Minister to use this occasion to clarify whether it is intended that the type of activities that I have described will indeed fall within the definition of regulated investment activities. If that is not the case—it was not in the whole sorry saga of pensions over recent years—a major territory of regulation will be omitted. That would be undesirable.
On new clause 34, there is a simple issue: when bringing together all the ombudsmen under one unit under the Financial Services Authority, there is little logic in leaving out just the pensions ombudsman, who is short of resources. Additional actuaries are needed to deal with quite a few complaints. It would be more sensible if all the ombudsmen relating to financial services were brought together under one ombudsman scheme.

Mrs. Jacqui Lait: Like my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I emphasise that new clause 34 is a probing amendment. It is so probing that I managed to forget to include in it the fact that the Occupational Pensions Regulatory Authority should go with the pensions ombudsman.
I thought that it was worth having a debate about the role of the pensions ombudsman in the new structure. It arises because of a constituency case that has raised some complex issues, most of which will be pursued in other ways, but the need to look more closely at the role of the pensions ombudsman was one of the results of that case. I will pursue some of the issues in the Committee that is considering the Child Support, Pensions and Social Security Bill. I emphasise that I tabled the new clause and was interested in it long before I was delighted to take on the pensions spokesman portfolio.
The pensions ombudsman has a good record. Many consumers have been delighted with his decisions, so I emphasise that it is an entirely constitutional legislative issue. It is by no means an attack on his role. There is a debate in the financial world about that role. I do not wish to take part in that debate. He has been so good to so many small consumers that some of the bigger companies have raised issues about him.
Members of pension funds, however, are unlikely to go to the press because they would feel intimidated in doing so. They are not likely to complain publicly. However, I think that complaints have been raised with a number of hon. Members privately. Lawyers are picking up on some of the issues that are emerging. That is where the debate has been in the past. As he has been so successful at resolving many of the easier cases, it is primarily only the complex, and of course the new, cases that remain.
The pensions ombudsman is unique in that he has some judicial powers, one of which is almost equivalent to those of Customs and Excise—he can send in the bailiffs. I am sure that some of the other ombudsmen wish that they had similar powers.
The ombudsman has been criticised over administration and delays. My hon. Friend pointed out that there have been improvements. Last September's annual report showed that fewer cases were waiting at the end of the year. However, we must remember that the poor ombudsman has few staff. He has half a lawyer, one legal adviser, one in-house litigation solicitor and no actuaries. Given that actuaries drive the pensions industry, I should have thought that he needed access to in-house actuarial advice.
I recognise that the pensions ombudsman only looks after occupational pensions. Historically, such pensions have been the prime provider, but life is changing. We have more money purchase and private pension schemes as well as the Government's stakeholder pension. That is where the problem arises. The Financial Services Authority and OPRA, plus two ombudsmen—two different ombudsmen—will have regulatory authority over stakeholder pensions, which points up the absurdity of the present situation.
The Investment and Life Assurance Group pointed out to me the confusion among the bodies that regulate stakeholder pensions. Such pensions are designed for people who earn roughly up to £20,000 a year. With the best will in the world, those are the people who have most need of sensible advice and who may need to have recourse to the regulatory authorities.
The present provision will lead to confused consumers. That is why there is an argument for the pensions ombudsman to come under the umbrella of the FSA in the new set-up. That would make the system simple. Consumers could go to one organisation. That ombudsman would have access to the latest thinking in a structured as opposed to an informal way.
Under the present proposals, the ombudsman is out on a limb, completely independent and without a structural relationship with the FSA. He may hear about best practice and thinking and new forms of help for consumers through the informal net, but he will not do so through the formal structured net, so he is a fairly lonely character in structural terms—robust, but lonely.
The Government must consider whether they are happy that the pensions ombudsman sits outside the FSA. The argument for that, as I understand it, is that the pensions ombudsman deals only with occupational pensions, which are not a financial product in the same way as an insurance policy is. These days, that comes close to deciding how many angels are dancing on the head of a pin. Ordinary consumers, among whom I would count most hon. Members, would not recognise the distinction


between an occupational pension and a financial services product. On those grounds, we have reason to bring the pensions ombudsman within the FSA structure.
There has never been a move to bring the pensions ombudsman into the FSA fold. As many people are satisfied with the job that he is doing, they have not felt that we need to re-examine his place in the system.
4 pm
In a sense, inertia rules. I feel that there could be a role for the ombudsman within the FSA, and that his relationship with the FSA should at least be more clearly defined. As I said, the matter of who holds responsibility for stakeholder pensions, for example, is very confused, and a clear line of responsibility needs to be established. Another option is to give the pensions ombudsman more power over more pensions products.
Consumers will become confused about pensions, and confused consumers become angry consumers. They will receive little satisfaction from this regulatory system and will be pushed from pillar to post. Moreover, hon. Members will discover that ever more people will visit our advice surgeries or write complex letters to us about pensions. As hon. Members who have dealt with pensions cases will know, constituents often visit us and begin by saying, "It's a long story", before producing several files. We have to help people with pensions complaints to find their way through the pensions maze.
I should hope that the Government will take new clause 34 away and seriously consider whether there is a role for the pensions ombudsman, with more responsibility, outside the structure, or whether he might be better placed within the FSA structure—so that the lives not only of consumers, but of hon. Members might be simplified.

The Economic Secretary to the Treasury (Miss Melanie Johnson): As the new clauses deal with rather different topics, I shall deal first with new clause 2, and then with the points made on new clause 34.
New clause 2 proposes that certain activities must be the subject of a regulated activities order, to be made under clause 20. Currently, however, the Bill does not specify which activities should or should not be subject to such an order, although, in schedule 2, an indicative list is provided of the types of activities that could be covered. The schedule essentially sets the four corners of the scope of financial regulation in the Bill.
Specifying activities in the Bill would not be appropriate, and it would go against the basic structure that we have tried to establish—which is that the detailed activities to be regulated are to be specified in secondary legislation, so that the scope of regulations may be adapted when necessary to take account of the changing needs of the regulatory climate. When it is proposed to extend the scope of regulation under the Bill, affirmative resolution procedure will apply.
Much of new clause 2 touches on advice being given on general matters, not on particular investments. The draft regulated activities order that was published in February 1999 proposed that, if advice was not being given on particular investments, it should not be caught. Therefore, generic advice given on investing in shares rather

than bonds, for example, would not be a regulated activity, whereas advice to buy shares in a given company would be a regulated activity.
The new clause seems partly to seek to contradict that position, and potentially to bring new matters within the scope of regulation, which is simply not our intention.
Although I appreciate that the hon. Member for Arundel and South Downs (Mr. Flight) said that the new clause was a probing amendment, I hope that I have explained why we do not think that it is the appropriate way to go.

Mr. Flight: The point of the probing amendment that was debated in Committee was to establish whether the Treasury were proposing to specify in the Bill the various types of investment advice that have developed. I should be grateful if the Minister could answer that.

Miss Johnson: If we specified them, we would do so in secondary legislation which will require an affirmative resolution. In schedule 2, we have indicated only the types of activity that we think could be covered, rather than tied ourselves down on the matter in primary legislation.
New clause 34, proposed by the hon. Member for Beckenham (Mrs. Lait), deals with dispute resolution in connection with operational pensions. It has been our intention where possible and sensible to remove the scope for overlaps and gaps in the arrangements connected with all kinds of financial services, so I cannot deny that there is a certain logic in the proposal.
However, the pensions ombudsman's current role is different from that envisaged under the Bill. The pensions ombudsman can entertain complaints against any trustees or sponsoring employers. That would not be the case under the Bill, because all potential respondents—such as employers—would not need to be authorised by the FSA, and so could not be brought within the compulsory jurisdiction. There is a fundamental difference in terms of the basis of the jurisdiction of the ombudsmen.
Moreover, the financial services ombudsman will generally consider relatively minor complaints—primarily from retail and small business customers about financial services they have bought, their home insurance, a problem with the mortgage and so on—where the nature of the complaint is between customer and service provider.
The pensions ombudsman—as all hon. Members will know—can look at the operation of the pension scheme as a whole, and can even consider complaints by potential respondents such as employers and trustees against each other. The ombudsman needs to be able to deal with the firm, the employees of the firm and the trustees of the firm's pension scheme, and deal with relationships between those people. Accordingly, whereas under the FSA's current proposals the ombudsman will be able to make awards of up to £100,000 per complaint, this would not be a sensible approach for the pensions ombudsman, given the collective nature of occupational pension schemes. There are a number of differences between the two proposals.

Mrs. Lait: Can the Minister clarify where the balance would lie in terms of people who have stakeholder pensions under a trustee system and the many stakeholder


pension schemes that will not have trustees? Would a member of a trustee stakeholder scheme go to the pensions ombudsman? Would someone with a money-purchase stakeholder scheme go to the FSA?

Miss Johnson: That is a matter for the relevant pensions Minister. The hon. Lady said that she will be raising such issues in debates on child support, pensions and social security. That issue should be raised with my colleagues in the Department of Social Security.
I accept that things will not always be clear cut. Clearly there can be cases where a person has a complaint against both an authorised person and the scheme trustees or employer—for example, in relation to a decision to opt out of an employer's scheme and take a personal pension plan recommended by an independent financial adviser. When problems arise, it is not immediately clear where the fault lies.
Sadly, I am not sure that that conflict can ever be resolved entirely. However, I hope that the hon. Member for Beckenham will note that paragraph 14(2)(c) of schedule 14 enables the ombudsman scheme rules to make provision allowing the ombudsman, with the consent of the complainant, to refer the case to another body for resolution by that body. Paragraph 19 provides a similar power for the voluntary jurisdiction, and allows the scheme to perform functions on behalf of a similar body, such as the pensions ombudsman. Those provisions were included with the pensions ombudsman in mind to ensure that the consumer could continue to benefit from an apparently seamless service in relation to pensions questions.
I hope that the hon. Member for Beckenham will agree that although there is no overwhelming single argument against the proposal that she has made, taking the various factors together, there are a number of potential problems that we ought to guard against. I hope that she will find my comments about the relationship between the two schemes reassuring.

Question put and negatived.

Clause 2

THE AUTHORITY'S GENERAL DUTIES

Amendment made: No. 240, in page 2, line 17, leave out paragraph (f) and insert—
(f) the need to minimise the adverse effects on competition that may arise from any exercise of its general functions;
(g) the desirability of facilitating competition between those who are subject to any form of regulation by the Authority.".—[Miss Melanie Johnson.]

Dr. Vincent Cable: I beg to move amendment No. 456, in page 2, line 18, at end insert—
(g) the need to facilitate access to appropriate financial services for disadvantaged consumers.".
Much of the attention of the Minister and her officials has been directed to the concerns of the City and the lightness of touch of regulation under the FSA, and we have devoted relatively little attention to the retail consumer interests, of which there are several. I raised in Committee the broad category of vulnerable consumers, which is a group of people who could be defined in terms of age, geography, mobility and income. The Minister gave a sympathetic reply, but said that such concerns

could be dealt with under the general objective of consumer protection contained in the Bill. I think that she accepted the spirit of the amendment I tabled in Committee, but thought that there was no reason for particular provision to be made.
I return to the issue for one particular reason. In another capacity, I am increasingly involved in the scrutiny of the Utilities Bill, which came before the House a few weeks ago. It contains a clause that specifically deals with disadvantaged consumers, and that represents an evolution in thinking in Government about how regulation should be handled. Until recently, utility regulators took the view that matters of poverty and age were nothing to do with them. The hon. Member for Ochil (Mr. O'Neill), the Chairman of the Select Committee on Trade and Industry, recounts a tale of the time the gas regulator appeared before the Committee and said that poverty had nothing to do with her. She claimed that it was the business of the Department of Social Security and the Treasury and should not be brought to the regulators.
The Department of Trade and Industry now understands that poverty is a regulatory issue and that it has, and should have, direct responsibility for focusing on the distinct problems of disadvantaged consumers. There are strong analogies between regulating utility contracts, which are complex and involve switching costs, and the kind of transactions that many consumers have to deal with in the financial services market. I do not know whether the Department has compared notes with the Treasury, but it seems that the regulation of financial services may be lagging behind the regulation of utilities in that respect. Perhaps some cross-fertilisation could take place.
The issue is important and I wish to press it. We are concerned on behalf of many people who face two sets of problems. The first is the problem of financial exclusion, which is something that the Minister knows about, because the Treasury has led the interdepartmental work on financial exclusion. She will know that some 1.5 million people are effectively shut out of the system of banking and financial intermediation.
The second problem is the exploitation of vulnerable people by financial institutions. We all know of many cases of 75-year-olds who have sought advice from bank branch staff. The old people do not understand that the advice is not independent and they are persuaded to switch large sums of money into an account that yields high commission income for the bank but is not in the interests of the customers. Some of those cases have been highlighted in the Daily Mail, which has run a campaign on the issue for some years.
The issue of vulnerable consumers is, therefore, partly a question of access, but also of abuse and consumer protection, which are not sufficiently covered in the Bill. What role can the FSA play, other than in its broad commitment to consumer protection? Well, the FSA could perform various specific functions and there is the possibility of cross-subsidising some of its regulatory activities. Certain kinds of financial institutions, such as credit unions, cater to the financially excluded, and cross-subsidy within the FSA arrangements could permit such work to be given priority, together with the use of information.
Perhaps most important is encouraging or, in some cases, requiring financial institutions to have proper safeguards and codes of conduct on how to deal with


disadvantaged consumers. For example, some banks whose branches have brought them bad publicity, such as Lloyds TSB, have adopted codes of good practice. Senior managers must approve investments by customers over the age of 75. Such customers must have an accompanying friend or mentor to advise them; they are encouraged to take away the contract before they sign it, and are not allowed to invest in long-maturing investments. There is a series of provisions that can be, and are, built in by the more forward-looking financial institutions—Nationwide is another one—but which are not common practice. The Financial Services Authority could ensure that such practice is generalised.
4.15 pm
This is an important issue that affects many people but has been omitted from the Bill. I understand that such a provision may previously have been felt to be insufficient. However, given the way in which regulatory thinking in government is advancing, particularly when we consider the Utilities Bill, I should need to be persuaded by the Minister that there were very good reasons for not pressing the amendment to a Division.

Mr. Flight: The issue raises an important subject on which all parties in the House agree—that is, that more than 1.5 million people do not use financial services. However, I think that the thoughts of the hon. Member for Twickenham (Dr. Cable) might have been led up the wrong path by his experience in connection with the Utilities Bill.
With regard to this Bill's objectives, the Government, the Opposition and the FSA have all stressed that they are the key guidelines that the FSA is to follow. I am sure that the hon. Gentleman is not suggesting that in that category of objectives the FSA should be thinking about making rules that were biased towards one particular section of the community.
Many things can be done to address and help those who do not use financial services. The hon. Gentleman cited many voluntary procedures. Credit unions are being encouraged to participate, Barclays bank is doing deals with post offices, and so forth. I think that on reflection the hon. Gentleman would agree that it is not appropriate for the issue to be listed as one of the five key objectives of financial regulation. I suggest that it is playing to the gallery, rather, to raise the point in this context.
We want to hear what other initiatives the Government suggest to help those consumers, and to encourage banks and others to provide services where they do not exist. As has been pointed out, much of that will have to be done on a cross-subsidised basis. Again, it is not really the role of regulation to have an objective telling businesses to cross-subsidise.
As for the right advice and products being provided for older people in particular, that is covered in the Bill under best practice. Under the Bill, it is a sin for advisers or providers to recommend a product to older people which is not suitable for their circumstances, and they can be punished if they do so. The amendment would not add anything in that area. Furthermore, I am sure that the industry is developing codes of good practice, and the FSA can encourage such development under its objective to provide greater education.
There is no disagreement with the spirit of the proposal, but the amendment itself is unsuitable.

Miss Melanie Johnson: As financial exclusion is a matter of concern to the whole House, I share the starting point adopted by the hon. Members for Twickenham (Dr. Cable) and for Arundel and South Downs (Mr. Flight). It is certainly a matter of great concern to the Government. We have focused on the needs of vulnerable consumers in several areas, and I shall touch on them when I come to answer the specific questions put by the hon. Member for Arundel and South Downs about action to help consumers.
Financial exclusion limits the ability of many of the poorest people in society to have access to or enjoy the benefits of an ever-increasing range of financial services. It is often more expensive for them to carry out transactions than it is for those of us with access to such services.
The Bill already contains two important provisions that help us towards our objective. First, there is the consumer awareness objective, set out in clause 4, which gives the Financial Services Authority an important role in providing the public with information. In part, of course, that is about helping those who already use financial services, but the objective is not only current users. It also gives the FSA a role in providing information and promoting the benefits—at least in general terms—of using financial services.
Hon. Members may be aware that the FSA has been working hard on this area. It has issued various consumer-oriented publications, such as its series of mini-guides. It has worked with consumer interest groups and citizens advice bureaux on consumer education initiatives. It has also worked with the Department for Education and Employment on possible topics for inclusion in the national curriculum, which will help young people to participate more actively as customers in the financial services market of the future. I very much welcome those developments, as both hon. Members will.
The consumer protection objective is also relevant. We have carefully sought to define "consumer" widely in clause 5, so that the people whom the FSA is required to protect include those not currently using financial services, but contemplating doing so. The Treasury has given considerable thought to the idea of imposing on the FSA a duty to have regard to financial exclusion, both in the context of the Bill and as part of its wider agenda on the topic. However, our conclusion was that the kind of provision proposed would not be the right way ahead. Indeed, as the hon. Member for Arundel and South Downs said, that was the drift of our argument in Standing Committee A.
As regards the points about action already taken, the main thrust of our announcements has been through policy action team report 14, which included proposals for an improved regulatory framework for credit unions, which have an important role to play; a new central services organisation to support and enhance the role of the credit unions; support for more widespread introduction of insurance-with-rent schemes so that people may have access to home contents insurance; exploring the possibility of widening the role of the social fund to help those in low-paid employment; and greater disclosure by the banks of their provision of services to the socially excluded.
Further steps include deregulation of the industrial insurance business—often known as the home services insurance business—which many insurers see as vital to the provision of door-to-door and locally delivered insurance and savings products. We will also provide greater freedoms for friendly societies. One of our most important initiatives aims at ensuring that people will have access to basic bank accounts, which we are pursuing with the banks and the British Bankers Association. We want to make sure that basic bank accounts are available to everyone who wants one for basic banking purposes. We are also in regular discussion with the industry—both firms and trade associations—about how we can work together.
The hon. Member for Twickenham talked about banks and codes of good practice. The BBA code of practice covers access and the identification required to open a bank account. Most major banks are party to that code. Our initiatives will lead to advances on the issues that concern the hon. Gentleman.
I agree with the hon. Member for Arundel and South Downs that the amendment would not be the right way to advance matters. It would not be sensible to add a further principle to the Bill, as the amendment would do. However, we anticipate that the FSA will consider protecting consumers as part of its general work and will seek to educate and inform consumers. We attach great importance to that principle, and I hope that the hon. Member for Twickenham will withdraw his amendment in the light of my remarks.

Dr. Cable: I thank the Minister for that reply. However, although its tone was helpful, it does not quite answer my concerns. I do not ask for much; we are not trying—as the hon. Member for Arundel and South Downs (Mr. Flight) suggested—to elevate the provision to one of the Bill's key objectives. That is not the point. We realise that consumer protection is the overriding concern.
We want our modest request to be taken into account, however. I do not know why the Government have a problem with it. If I understand the Minister's reply correctly, she said that the Government had been thinking about how they could insert a phrase so that we could have regard to financial exclusion and the difficulties faced by low-income and older consumers. But the Government have not met that requirement—perhaps it will be dealt with in another place. In the absence of a Government provision, the amendment is the only proactive suggestion for handling the matter.
I accept much of what the Minister said. A great deal is happening on the financial exclusion front; I do not want to minimise that. Many good initiatives have been taken and I welcome them. However, we have to confront an environment in which the FSA has a broad remit to examine such problems.
In debates on other clauses, we discussed the problem of what happens under different management. For example, Mr. Howard Davies will move on, and a different cultural environment will develop in which there is no pressure on the FSA management to give those issues the importance that they deserve. That is why it is essential to have some explicit commitment in the measure to oblige the FSA to treat certain issues with some importance—especially education and the prevention of abuse, both of which are serious problems for people on low incomes and for very elderly people.

I therefore ask the House to accept the amendment.

Question put, That the amendment be made:—

The House divided: Ayes 38, Noes 305.

Division No. 68]
[4.27 pm


AYES


Allan, Richard
Kirkwood, Archy


Ashdown, Rt Hon Paddy
Livsey, Richard


Baker, Norman
Maclennan, Rt Hon Robert


Ballard, Jackie
Michie, Mrs Ray (Argyll & Bute)


Beggs, Roy
Moore, Michael


Brand, Dr Peter
Oaten, Mark


Breed, Colin
Öpik, Lembit


Burnett, John
Rendel, David


Burstow, Paul
Ross, William (E Lond'y)


Cable, Dr Vincent
Russell, Bob (Colchester)


Campbell, Rt Hon Menzies (NE Fife)
Smyth, Rev Martin (Belfast S)



Stunell, Andrew


Cotter, Brian
Taylor, Matthew (Truro)


Donaldson, Jeffrey
Thompson, William


George, Andrew (St Ives)
Tyler, Paul


Hancock, Mike
Webb, Steve


Harvey, Nick
Welsh, Andrew


Heath, David (Somerton & Frome)
Willis, Phil


Hughes, Simon (Southwark N)



Keetch, Paul
Tellers for the Ayes:


Kennedy, Rt Hon Charles (Ross Skye & Inverness W)
Mr. Adrian Sanders and



Mr. Tom Brake.




NOES


Ainger, Nick
Caplin, Ivor


Ainsworth, Robert (Cortry NE)
Casale, Roger


Alexander, Douglas
Caton, Martin


Allen, Graham
Cawsey, Ian


Ashton, Joe
Chaytor, David


Atkins, Charlotte
Chisholm, Malcolm


Austin, John
Clapham, Michael


Banks, Tony
Clark, Rt Hon Dr David (S Shields)


Barnes, Harry
Clark, Paul (Gillingham)


Barron, Kevin
Clarke, Charles (Norwich S)


Battle, John
Clarke, Eric (Midlothian)


Bayley, Hugh
Clarke, Rt Hon Tom (Coatbridge)


Beard, Nigel
Clarke, Tony (Northampton S)


Beckett, Rt Hon Mrs Margaret
Clwyd, Ann


Benn, Rt Hon Tony (Chesterfield)
Coaker, Vernon


Benton, Joe
Coffey, Ms Ann


Bermingham, Gerald
Coleman, Iain


Best, Harold
Colman, Tony


Betts, Clive
Connarty, Michael


Blackman, Liz
Cooper, Yvette


Blair, Rt Hon Tony
Corbett, Robin


Blears, Ms Hazel
Corston, Jean


Blizzard, Bob
Cox, Tom


Blunkett, Rt Hon David
Cranston, Ross


Boateng, Rt Hon Paul
Crausby, David


Borrow, David
Cryer, Mrs Ann (Keighley)


Bradley, Keith (Withington)
Cryer, John (Hornchurch)


Bradley, Peter (The Wrekin)
Cummings, John


Bradshaw, Ben
Curtis-Thomas, Mrs Claire


Brinton, Mrs Helen
Dalyell, Tam


Brown, Rt Hon Gordon (Dunfermline E)
Darling, Rt Hon Alistair



Darvill, Keith


Brown, Rt Hon Nick (Newcastle E)
Davey, Valerie (Bristol W)


Brown, Russell (Dumfries)
Davidson, Ian


Browne, Desmond
Davies, Rt Hon Denzil (Llanelli)


Buck, Ms Karen
Davies, Geraint (Croydon C)


Burden, Richard
Davis, Rt Hon Terry(B'ham Hodge H)


Burgon, Colin



Butler, Mrs Christine
Dawson, Hilton


Campbell, Alan (Tynemouth)
Denham, John


Campbell, Ronnie (Blyth V)
Dismore, Andrew


Campbell-Savours, Dale
Dobbin, Jim


Cann, Jamie
Doran, Frank






Dowd, Jim
Lepper, David


Drew, David
Leslie, Christopher


Eagle, Angela (Wallasey)
Levitt, Tom


Eagle, Maria (L 'pool Garston)
Lewis, Terry (Worsley)


Edwards, Huw
Liddell, Rt Hon Mrs Helen


Ellman, Mrs Louise
Linton, Martin


Ennis, Jeff
Livingstone, Ken


Etherington, Bill
Lloyd, Tony (Manchester C)


Reid, Rt Hon Frank
Lock, David


Fisher, Mark
Love, Andrew


Fitzpatrick, Jim
McAvoy, Thomas


Fitzsimons, Lorna
McCabe, Steve


Flint, Caroline
McCafferty, Ms Chris


Foster, Rt Hon Derek
McCartney, Rt Hon Ian (Makerfield)


Foster, Michael Jabez (Hastings)



Foster, Michael J (Worcester)
McDonagh, Stobhain


Fyfe, Maria
Macdonald, Calum


Galloway, George
McDonnell, John


Gardiner, Barry
McFall, John


Gerrard, Neil
McGuire, Mrs Anne


Gibson, Dr Ian
McIsaac, Shona


Gilroy, Mrs Linda
McKenna, Mrs Rosemary


Godman, Dr Norman A
McNamara, Kevin


Godsiff, Roger
McNulty, Tony


Goggins, Paul
Mactaggart, Fiona


Golding, Mrs Llin
McWalter, Tony


Gordon, Mrs Eileen
McWilliam, John


Griffiths, Jane (Reading E)
Mahon, Mrs Alice


Griffiths, Nigel (Edinburgh S)
Mallaber, Judy


Griffiths, Win (Bridgend)
Marsden, Gordon (Blackpool S)


Grocott, Bruce
Marsden, Paul (Shrewsbury)


Gunnell, John
Marshall, David (Shettleston)


Hall, Mike (Weaver Vale)
Marshall, Jim (Leicester S)


Hall, Patrick(Bedford)
Marshall-Andrews, Robert


Hamilton, Fabian (Leeds NE)
Martlew, Eric


Hanson, David
Maxton, John


Harman, Rt Hon Ms Harriet
Meacher, Rt Hon Michael


Heal, Mrs Sylvia
Meale, Alan


Healey, John
Michie, Bill (Shefld Heeley)


Henderson, Ivan (Harwich)
Milburn, Rt Hon Alan


Hesford, Stephen
Miller, Andrew


Hill, Keith
Mitchell, Austin


Hinchliffe, David
Moran, Ms Margaret


Hodge, Ms Margaret
Morgan, Ms Julie (Cardiff N)


Hopkins, Kelvin
Morley, Elliot


Howarth, George (Knowsley N)
Morris, Rt Hon Ms Estelle (B'ham Yardley)


Howells, Dr Kim



Hughes, Ms Beveriey (Stretford)
Mountford, Kali


Humble, Mrs Joan
Mudie, George


Hurst, Alan
Mullin, Chris


Hutton, John
Murphy, Denis (Wansbeck)


Iddon, Dr Brian
Murphy, Jim (Eastwood)


Jackson, Helen (Hillsborough)
Naysmith, Dr Doug


Jamieson, David
O'Hara, Eddie


Jenkins, Brian
Organ, Mrs Diana


Johnson, Alan (Hull W & Hessle)
Pearson, Ian


Johnson, Miss Melanie (Welwyn Hatfield)
Pickthall, Colin



Plaskitt, James


Jones, Rt Hon Barry (Alyn)
Pollard, Kerry


Jones, Helen (Warrington N)
Pond, Chris


Jones, Ms Jenny (Wolverh'ton SW)
Pope, Greg



Pound, Stephen


Jones, Jon Owen (Cardiff C)
Powell, Sir Raymond


Jones, Dr Lynne (Selly Oak)
Prentice, Ms Bridget (Lewisham E)


Jones, Martyn (Clwyd S)
Prentice, Gordon (Pendle)


Jowell, Rt Hon Ms Tessa
Prescott, Rt Hon John


Kaufman, Rt Hon Gerald
Prosser, Gwyn


Keeble, Ms Sally
Purchase, Ken


Keen, Alan (Feltham & Heston)
Quin, Rt Hon Ms Joyce


Kemp, Fraser
Quinn, Lawrie


Khabra, Piara S
Radice, Rt Hon Giles


Kidney, David
Rammell, Bill


Kilfoyle, Peter
Rapson, Syd


King, Andy (Rugby & Kenilworth)
Raynsford, Nick


King, Ms Oona (Bethnal Green)
Reed, Andrew (Loughborough)


Kumar, Dr Ashok
Reid, Rt Hon Dr John (Hamilton N)





Rogers, Allan
Taylor, David (NW Leics)


Ross, Ernie (Dundee W)
Thomas, Gareth R (Harrow W)


Ruane, Chris
Timms, Stephen


Ruddock, Joan
Tipping, Paddy


Russell, Ms Christine (Chester)
Todd, Mark


Ryan, Ms Joan
Touhig, Don


Salter, Martin
Trickett, Jon


Sarwar, Mohammad
Truswell, Paul


Savidge, Malcolm
Turner, Dennis (Wolverh'ton SE)


Sawford, Phil
Turner, Dr Desmond (Kemptown)


Sedgemore, Brian
Turner, Neil (Wigan)


Shaw, Jonathan
Twigg, Derek (Halton)


Sheerman, Barry
Twigg. Stephen (Enfield)


Sheldon, Rt Hon Robert
Vis, Dr Rudi


Shipley, Ms Debra
Walley, Ms Joan


Short, Rt Hon Clare
Ward, Ms Claire


Simpson, Alan (Nottingham S)
Wareing, Robert N


Singh, Marsha
Watts, David


Skinner, Dennis
White, Brain


Smith, Rt Hon Andrew (Oxford E)
Whitehead, Dr Alan


Smith, Angela (Basildon)
Wicks, Malcolm


Smith, Jacqui (Redditch)
Williams, Rt Hon Alan (Swabsea W)


Smith, Llew (Blaenau Gwent)
Williams, Alan W (E Carmarthen)


Snape, Peter
Williams, Mrs Betty (Conwy)


Soley, Clive
Wills, Michael


Speller, John
Wilson, Brian


Squire, Ms Rachel
Winnick, David


Starkey, Dr Phyllis
Winterton, Ms Rosie (Doncaster C)


Steinberg, Gerry
Wise Audrey


Stewart, David (Inverness E)
Wood Mike


Stinchcombe, Paul
Woodward, Shaun


Stoate, Dr Howard
Woolas, Phil


Strang, Rt Hon Dr Gavin
Worthington, Tony


Stringer, Graham
Wright, Anthony D (Gt Yarmouth)


Stuart, Ms Gisela
Wright, Dr Tony (Cannock)


Sutcliffe, Gerry



Taylor, Rt Hon Mrs Ann (Dewsbury)
Tellers for the Noes:



Mr. Kevin Hughes and


Taylor, Ms Dari (Stockton S)
Mr. David Clelland.

Question accordingly negatived.

Miss Melanie Johnson: I beg to move amendment No. 241, in page 2, line 23, leave out "advice and" and insert "general".

Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss Government amendments Nos. 242 to 244, 90, 117, 418, 419, 448, 125, 126, 128 to 134, 449, 454, 138, 141 to 143, 330 and 443.

Miss Johnson: The amendments make minor drafting changes designed to achieve accuracy and consistency in the Bill. I do not propose to speak to any of them, unless hon. Members raise specific questions.

Mr. Flight: Many of the points covered by the amendments were raised by us in Committee. I shall comment on two issues.
In amendment No. 241, the wording limits the general functions in relation to advice and guidance to only general guidance. This is largely a semantic issue, but in our view that is wrong. It is a general function of the FSA to give ad hoc advice and information on an informal basis, and we would not want the amendment to be interpreted in such a way that that was not a general function of the FSA.
Amendments Nos. 448 and 454 empower the FSA to call for specified information and impose requirements on the operations of collective investment schemes outside


the UK in the designated territories, on the same basis as it is empowered to do in relation to schemes run by UK-authorised persons. That is tantamount to claiming an extraterritorial power, which is not appropriate.
Machinery already exists to remove designated status approval if the FSA is not satisfied with the way in which a scheme outside the UK is being run. I trust that the Lords will deal with the matter further. It is not appropriate, as the amendments imply, for the FSA to claim regulatory powers over other countries that have their own regulatory regimes.
Amendment agreed to.
Amendment made: No. 242, in page 2, line 26, at end insert—
( ) 'General guidance' has the meaning given in section 130(5).".—[Miss Melanie Johnson.]

Mr. David Heathcoat-Amory: I beg to move amendment No. 235, in page 2, line 26, at end insert—
(4A) The Authority must ensure that its staff responsible for or involved in—

(a) monitoring, investigating or disciplining authorised or approved persons or,
(b) investigating persons suspected of engaging in, or of requiring or encouraging another person to engage in, market abuse or any offence for which it can institute proceedings, and
(c) drafting, or giving instructions to the draftsman of, rules, statements of principle or codes

shall be suitably competent and shall have sufficient knowledge of the relevant financial sector to fulfil their functions.
I am sorry that we have only a few minutes to debate a rather important issue—the qualifications of FSA staff—as it is a matter of considerable concern to the financial services industry. Although many of those in the industry have faith in the competence and ability of the senior members of the authority, they often have to deal with more junior staff, many of whom lack experience, to put it mildly. A number of the previous regulatory bodies, such as the Personal Investment Authority, achieved a reputation for having staff who did not always exhibit the required professionalism and experience.
The authority will wield substantial discretionary power. Comparatively junior staff will therefore have considerable authority. Even if firms are not frightened of them, they believe that they have a right to expect that staff are properly trained. Many firms and people in the market complain that they spend a great deal of time educating the regulatory staff in basic rules of business. That takes time and is the reason for many of the compliance costs. Will the staff hired and retained by the authority measure up to the standards that they require of others when they become authorised persons?
4.45 pm
I asked the Minister that question in Committee and did not receive an answer. The matter is especially important given that, under the compensation scheme, authority staff will run businesses, or at least make business decisions about firms—for example, when and how they can be compensated. In the case of insurance companies, they can take over businesses and make important decisions about them. It is important that the staff measure up to the standards that they require in others. Will FSA staff be required to be authorised persons? If not, why not?
My other question deals with the adequacy of current staffing in the FSA. On 4 February,The Timesreported that the authority was still attempting to recruit approximately 150 staff. The article stated:
An FSA spokesman admitted yesterday that the regulator was still short of the 2,000 staff it needed to carry out its revamped and expanded function, which has been set out in the Bill.
That is worrying. We want an effective regulator, which has not only the right quality of staff but enough of them to discharge the functions that the House is giving it. I hope that the Minister can answer the questions about the training and competence of the staff and their number.

Miss Melanie Johnson: The Joint Committee considered the staffing of the FSA. It rightly concluded that it is important for the FSA to attract appropriately qualified staff, that their salaries need to be competitive and that there is merit in seconding practitioners with up-to-date experience of trading in regulated industries. I am sure that the right hon. Member for Wells (Mr. Heathcoat—Amory) agrees with that. However, the Committee also concluded that staffing is not a matter for the Bill. That is crucial, and I agree whole-heartedly with the Committee. It is not appropriate for a Bill to go into staffing details for an organisation such as the FSA.
The Bill already deals with some of the issues about which the right hon. Gentleman is worried. It makes board members responsible for arrangements for the discharge of its functions, and gives the non-executive members a specific role in reviewing the discharge of the FSA's functions. The board, not members of its staff, will be responsible for discharging its legislative functions.
The FSA will be required to report on the discharge of its functions in its annual report. Its general policies and practices will be subject to scrutiny by the practitioner and consumer panels, as well as by the Government and, through the Treasury Committee, by Parliament. We do not think it is necessary or appropriate for the Bill to tell the FSA, any more than other bodies that exercise public functions, what staff it should employ to meet its responsibilities.
If the FSA fails to deliver its objectives, board members are ultimately accountable, so they will have every incentive to employ the right mix of staff and to make the best use of them—
It being one hour after the commencement of proceedings on consideration of the Bill, MR. DEPUTY SPEAKER,pursuant to Order [this day], put forthwith the Question already proposed from the Chair.
Amendment negatived.
MR. DEPUTY SPEAKER then proceeded to put forthwith the Questions necessary for the disposal of the business to be concluded at that hour.

Mr. Deputy Speaker (Sir Alan Haselhurst): I understand that the Government need to move Government amendment No. 405.

Mr. David Kidney: On a point of order, Mr. Deputy Speaker. You refer to Government amendment No. 405. Am I wrong to think that that is an Opposition amendment?

Mr. Deputy Speaker: It was originally an Opposition amendment, but it was accepted by the Government. The guillotine has fallen so it has to be proposed by them.

Clause 6

THE REDUCTION OF FINANCIAL CRIME

Amendment made: No. 405, in page 3, line 19, leave out "by a regulated person" and insert—

"(a) by a regulated person, or
(b) in contravention of the general prohibition,". —[Mr. Allen.]

Clause 17

THE GENERAL PROHIBITION

Amendment made: No. 67, in page 8, line 7, leave out
in relation to that activity".—[Mr. Allen.]

Clause 19

RESTRICTIONS ON FINANCIAL PROMOTION

Mr. Heathcoat-Amory: I beg to move amendment No. 4, in page 8, line 21, leave out from "communicate" to "activity" in line 22 and insert—
or cause to be communicated—

(a) an invitation to engage in investment activity; or
(b) information which is intended or might reasonably be presumed to be intended to lead directly or indirectly to engagement in such".

Mr. Deputy Speaker: With this it will be convenient to discuss the following: amendment No. 5, in page 8, line 28, leave out
capable of having an effect
and insert—
intended to be acted on by a person".
Amendment No. 185, in page 8, line 34, leave out
The Treasury may by order specify
and insert—
Subsection (1) does not apply in the case of an oral communication which does not constitute an invitation to engage in investment activity and the Treasury may by order specify other".
Government amendment No. 68.
Amendment No. 388, in clause 212, page 108, line 10, after "communicate", insert—
to a person in the United Kingdom".
Amendment No. 403, in page 108, line 10, leave out from "communicate" to end of line 11 and insert—
, or cause to be communicated, to a person in the United Kingdom—

(a) an invitation to participate in a collective investment scheme; or
(b) information which is intended, or might reasonably be presumed to be intended, to lead directly or indirectly to such participation.".

Amendment No. 404, in page 108, line 15, leave out
capable of having an effect
and insert—
intended to be acted upon by a person".

Amendment No. 389, in clause 214, page 109, line 19, after "communicated", insert—
and none of the exemptions prescribed by rules made by the Authority under section 212(5) would have applied".

Mr. Heathcoat-Amory: The Minister was cut off in full flow, but I hope that that will not prevent her or her colleagues from returning to the unanswered points, perhaps on Third Reading. She began a little unconvincingly, if I may say so, and perhaps the real answers were further on in her brief. Staff training is sufficiently important to warrant the provision of a little more information. However, under the rules of the House we must pass on to restrictions on financial promotion, which relates to an important part of the Bill.
Clause 19 caused a lot of problems in Committee and we debated it at considerable length. However, I freely concede that the Bill has been greatly improved in this respect. The first stab at restricting financial promotion was absurd, as almost everyone would have been prevented from telling almost anybody about any investment activity whatever. The Government rapidly recognised that as unworkable, if not absurd. I gave an example in Committee that was not contradicted by any Labour Member: if I was not an authorised person, telling my neighbour that he ought to think about taking out a pension would have been a criminal offence. That approach would have completely discredited the law, as it does us no service to have laws that are widely ignored or ridiculed.
The Government have improved that aspect of the Bill, and advice or an invitation to invest must be offered in the course of business. That is a big improvement, but our amendment would improve things further—the clause is still drawn very widely indeed—by importing an element of intention to the activity, or at least strengthening the intention element. The person communicating information must invite the other person to invest or intend to do so. The clause, certainly in some respects, refers to an invitation but also to an inducement. It is not clear whether that provision operates sufficiently in respect of the intention of the person making the offer or issuing the invitation, and it relies too much on effect. It is important to be more explicit about the motives and state of mind of the person issuing the invitation; otherwise, we shall catch those who provide information—it may be acted on by others who may undertake investment activity as a result of reading it or listening to such people—even though they did not intend to issue any sort of invitation whatever.
Amendment No. 5 tackles the issue of communications received from outside the UK. At present, the Bill attempts to criminalise communications that are capable of having an effect in the UK unless they are made by an authorised person. Many people issuing electronic invitations or making information available on websites will not have heard of the FSA and will certainly not be authorised persons.
The provision is far too wide and is liable to catch communications between two people, neither of whom are in the UK, but which nevertheless could be seen and acted on by someone in the UK—for instance, on the internet. An invitation over the internet from someone in Canada to another person in the United States may be freely accessible in this country and could be acted on by someone here, who would be caught by the clause. I think


that that provision is largely unenforceable. If I am wrong, perhaps the Financial Secretary could explain how the clause will operate. Amendment No. 5 would remove the phrase
capable of having an effect
and insert the words
intended to be acted on by a person".
That is an important restriction and a narrowing of the clause, which would give it greater purpose and effect.
Amendment No. 185 would expressly provide that oral communications are allowed. This is more in the nature of a probing amendment, but I hope that it will lead to a short debate on the issue of solicited as against unsolicited communications. As things stand, even a telephone call that is solicited by a client could be caught by the Bill. To give another example, a firm based abroad may be telephoned by someone from this country who has seen some of its promotional literature and wants to know more about the products or services on offer. If the firm responds, it could be guilty of an offence. I should like to know whether that is reasonable, and how it can be enforced. Our amendment tackles that problem and would exclude such oral communications from the prohibition.
Amendment No. 388 concerns collective investment schemes. Clause 122 prohibits authorised firms from marketing unregulated investment schemes. We are not quarrelling with that, but our amendment would restrict that to persons in the United Kingdom; otherwise, firms in this country would be unable to market schemes in other countries where the local regulator had no objection, and we could face the bizarre situation in which the only schemes that could not be marketed in such countries would be United Kingdom schemes, which would put our industry at a competitive disadvantage.
It is wrong in principle that firms in this country should face a double jeopardy. They could be stopped from marketing a certain investment scheme which falls foul of the rules over here, even though the countries to which their marketing effort is directed have no problems. If that happens, the citizens and investors in that country will simply buy from everyone else except the United Kingdom. I do not think that this is compatible with the principle set out in the Bill, which is to try to safeguard the competitiveness of the United Kingdom industry. It is not right that one part of the Bill should conflict with the expressed objectives and principles in another. 1 shall be interested in the Minister's comments.

5 pm

The Financial Secretary to the Treasury (Mr. Stephen Timms): The financial promotion regime dealt with in the clause governs the advertising of financial services and investments. It is important for ensuring that members of the public are not ripped off. The regime that we have developed and enshrined here seeks to bring the law more up to date and to recognise new technologies and different media, such as the internet and digital television.
The guiding principles have been to make the new regime future-proof and technologically neutral. We are committed to doing everything we can to make sure that the UK is in the lead in making the best use of technology in this field, as in all fields. We are also proposing new financial promotion exemptions in secondary legislation to make informal capital-raising by small businesses and start-ups easier.
The financial promotion regime set out here applies to unauthorised persons. Authorised persons will be subject to the rules of the Financial Services Authority. So the clause is unlikely to have a direct effect on the businesses of financial services firms. This is an issue where there has been a good deal of misunderstanding, and the House needs to be clear about it.
Government amendments to the clause and to clause 212 were proposed in Committee in July in response to consultation. As the right hon. Member for Wells (Mr. Heathcoat-Amory) acknowledged, they have gone a long way to meeting the concerns that were expressed at that time.
The amendments did two main things. First, they introduced a business test into the financial promotion prohibition, so that only promotions made in the course of business are caught, and not the discussion between neighbours that the right hon. Gentleman suggested, which could have been caught by the earlier formulation. Secondly, the amendments changed the language of the basic financial promotion prohibition so that the prohibition and offence apply to communications which are more clearly promotional in nature, not just information which might lead to financial services activity.
We have put out two consultation papers on financial promotion. The second included a draft order with exemptions from the basic financial promotion prohibition. The consultation period for the second paper closed very recently. We shall listen carefully to comments on the draft order and to other comments made in relation to the clause. It is important that we do not prejudge at this stage the results of that consultation exercise.
Amendments Nos. 4 and 403 seek to reinstate the previous financial promotion restriction, although they recognise that there should be a business test. It was not clear from what the right hon. Member for Wells said, but it is the case that they propose bringing back the old language, before the July amendments, catching
information which is intended or might reasonably be presumed to lead directly or indirectly to engagement in investment activity",
with the focus on "information". In the July amendments that was changed to make reference to a prohibition on invitations or inducements to engage in investment activity.
The right hon. Gentleman suggested that the form of words in the amendment enshrined a greater degree of intent than is in the wording of the Bill, but I do not think that that is so. There is clearly in the wording here, "invitation or inducement", greater clarity about what is envisaged than in the old wording, which has appeared again in amendment No. 4.
The changes were made in response to concern expressed in consultation that factual information that was not promotional could be caught by the prohibition as originally drafted. I am surprised that the Opposition should suggest returning to the earlier wording.

Mr. Jim Cousins: I am sure that my hon. Friend has followed the exchanges that have taken place between two of our great popular newspapers over the past 10 days. Allegations have been made—it is not necessary to explore the truth of them here—that journalists responsible for giving investment advice themselves had investments in the companies and enterprises that they were tipping. Do the Government intend activities of that kind to be caught by the clause?
If this is a difficult question, I am happy for further thought to be given to it, but we need clarification. The investing public are now very aware of the situation, because of the conflict between the two newspapers.

Mr. Timms: My hon. Friend presents me with an interesting invitation to engage in the crossfire between two august institutions. I shall resist on this occasion, but he has raised a significant point, on which we may be able to comment before the end of the debate.
Amendment No. 5 deals with the territorial scope of the financial promotion prohibition. We discussed that at length in Committee, and it was also dealt with in the two financial promotion consultation papers. Territorial scope is especially important given the increasing use of the internet, whereby overseas providers can easily target UK investors. We want to encourage use of the internet, which should lower costs to consumers and provide consumer choice. It should also give UK businesses better access to a wider range of consumers. It is, however, important for consumers to have appropriate protection as well.
The financial promotion prohibition has a twofold territorial scope. It applies to promotions issued from the UK to places or persons overseas, and also to inward promotions—promotions issued to the UK from outside it. Amendment No. 5 relates to inward promotions, and proposes that promotions that originate overseas but are
intended to be acted on by a person"—
a UK person—should be caught. The language in the Bill as it stands catches inward promotions that are
capable of having an effect
in the UK. I should point out, however, that the draft financial promotion exemptions order, on which we have been consulting, proposes the limitation of that arrangement, so that only communications that are actually directed at the UK will be caught. That may well deal with the concern expressed by the right hon. Member for Wells.
Amendment No. 5 would have a fairly similar effect to that of inserting the "directed at" test—currently in the order—in the Bill. Both the amendment and the clause as currently drafted reflect, to an extent, the principle of so-called host state regulation: regulation in the country in which a promotion is received. We mention in the consultation paper that we have been considering putting the "directed at" test in the Bill, rather as the right hon. Gentleman proposes. We think, however, that it would be inappropriate to make any change along those lines at this stage, for a number of reasons.
First, the consultation has only just ended, and we need to consider it properly. Secondly, we need to view the issue in the light of potential European Union and international developments—and, in particular, a possible move to the "home state" or "country of origin" regulatory principle in respect of financial promotions, if that is provided for in future by EU legislation or other multilateral agreements. We want to ensure that the Bill is future-proof in that respect.
We support the principle of home state regulation that is reflected in the draft European e-commerce directive, although its application is limited in the financial services sector, but we are not currently convinced by the

argument for applying solely the home state regulatory principle to financial promotions in advance of appropriate European legislation. We need to bear in mind the importance of the UK acting consistently with other jurisdictions. If the UK applied, say, only home state regulation, but other European economic area jurisdictions applied only host state regulation, there could be undesirable results and gaps in the system. However, it is an important issue. We have been consulting on it. We prefer not to prejudge the results of that consultation by amending the Bill at this stage. The possibility remains of doing so later. I hope that Conservative Members will take some comfort from that.
I move to amendments Nos. 388 and 404. Amendments that would have had a similar effect were debated in Committee, when my hon. Friend the Economic Secretary to the Treasury recognised that there might be a case for applying the territorial scope of the collective investment scheme marketing prohibition differently from that of the clause 19 prohibition. We will continue to reflect on that in the light of consultation responses to the financial promotion consultation paper; again, reflection on that is not yet concluded.
Amendment No. 185 seeks to provide that oral promotions should not be prohibited, unless they amount to an invitation to engage in investment activity. That is not appropriate. First, it reintroduces the concept of oral and other types of communication to the basic prohibition. We have tried to do away with those concepts in the light of developing technology. For example, why should someone be allowed to promote investments orally, but not over the internet, say, via an internet chat room, which to all intents and purposes has similar features to a conversation, in that a chat room effectively allows informal, immediate on-line "conversations"? The distinction is not as clear cut as it should be to be included.
Secondly, there are numerous ways in which a person might promote investments which do not amount to an outright "invitation." Conceivably, quite a hard sell would be involved, but it might not be an invitation. Under amendment No. 5, such a hard sell could be exempt, but we are not seeking to regulate all forms of communication. Seeking to control conversations of all types is not sensible. That is why we have proposed that communications that are not made in the course of business should not be caught. Therefore, a conversation between friends in the pub or neighbours should not be caught, unless it is made in the course of business.
The draft exemptions order proposes various other exemptions that could apply to oral communications: for example, a widespread exemption for calls that are invited by the recipient of the promotion and that are not made as part of a wider selling campaign.
Amendment No. 389 tracks amendment No. 787, which was tabled by the hon. Member for Arundel and South Downs (Mr. Flight) in Committee. The intention behind the clause is that, if an authorised person cannot issue the promotion, an authorised person cannot approve an unauthorised person issuing it either. Beyond that, it will be for the authority to make rules under clause 118 concerning authorised persons' approval of financial promotions. That is the intention. As the Economic Secretary to the Treasury said, we are still considering how well the drafting achieves that. We will come back


to the matter, if necessary, in due course. We will, of course, reflect again on what the right hon. Member for Wells has said.
Government amendment No. 68 is a drafting amendment to improve the clarity of the wording. I commend it to the House.

Mr. Flight: As the Minister will recollect, there were 43 pages of debate on the clause in Committee. Numerous concerns about the clause have been raised by a raft of lawyers, by the communication industry, by the financial services industry and indeed by bureaucrats. It is somewhat strange that we should be on Report with the Government effectively saying at last that they recognise quite a lot of the concerns that we have expressed and will look to deal with them. We are left with a crucial clause that is nowhere near complete.
5.15 pm
We cannot see why the Government have for so long not taken the points, which are clear and straightforward and which our various amendments highlight. Without repeating all the points that were made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), there are four different territories. One is simple: we are dealing with a criminal offence. People can go to jail for it and there should be some requirement on the prosecution to prove intent; that the communication was to some extent promotional and intended to attract people potentially to invest.
The issue on the net is the most important. The Government seem to be saying that they will change their mind. The draft exemptions go some way towards that, but as the Government will be aware, there is quite a lot of detail that would lead a lot of businesses to fall foul of the order.
It has been made fairly clear that it would be possible to open EU infringement proceedings. Indeed, there is a question as to whether the Government should have cleared draft legislation with the Commission under the transparency directive before introducing it.
It seems that the Government will move in one form or other to the principle that we have suggested. Ridiculously, the wording
capable of having an effect in the United Kingdom
would ensure that almost any form of communication about the world would be covered by UK regulation. The many communications between a business in Tokyo and one in the United States on the net could have an effect if someone looked them up here. The suggestion that the FSA should regulate cyberspace is impractical and indeed damaging to our reputation.
Amendment No. 185 deals with the cold-calling and oral issue. The intention is not to exempt oral communications that were self-evidently fraudulent or designed to promote, but unless our amendment is accepted there will be problems with overseas investment firms that do not have branches in the UK and that would be unlikely to know the detailed requirements under the proposed Treasury orders and to remember to send a second document asking for consent to cold calls. Many breaches could arise in relation to the placement of flotations; United States security houses would naturally want to send offerings about the world by not just oral, but

other means of communication. More thought will need to be given if our amendment is not to be accepted in that parameter.
Amendment No. 388 relates to the fact that the Bill prohibits authorised firms from marketing unregulated collective investment schemes. We believe that that prohibition should apply only when the communication is to a person in the UK. Again, there are many instances where schemes may not be regulated. They may be under jurisdictions other than that in the UK; UK firms may be properly promoting in other parts of the world, where there are either no regulations to prohibit them from doing so, or it is normal to do so. As the clause stands, particularly in the venture capital sector, some silliness could result.
We see amendment No. 389 as a correction. Clause 214 imposed a general prohibition on approving marketing materials for unregulated schemes. Our amendments limit that provision to where none of the exemptions prescribed by the FSA rules apply. As the clause is drafted, that may seem implicit, but it certainly is not,
This territory is of crucial importance. It is relevant to the development of the United Kingdom as a leading economy in e-commerce and to the international marketing of products and services by European Union financial services businesses. It concerns a criminal offence. The clause is not right yet, as the Government seem to admit. It is well overdue that it should be and we want to press our amendments.

Mr. Timms: We will certainly reflect on the arguments of the hon. Member for Arundel and South Downs (Mr. Flight) as well as those of the right hon. Member for Wells (Mr. Heathcoat-Amory). The clause has been a good deal improved since it first appeared before the Standing Committee. I am still not clear why Opposition Members are trying to reinstate some of the wording that was removed during the improvement process.
In response to my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins), on the activities of newspapers and journalists, as I said, I would not want to comment on the individual case to which he referred. Alongside the existing criminal offences of insider dealing and market manipulation, new provisions in the Bill will allow the FSA to impose penalties on anyone who abuses markets. Journalists will be in the same position as everyone else. Penalties could be imposed on them if they abuse the markets. Journalists do not at present need authorisation if they give advice in a newspaper or periodical whose principle purpose is not giving investment advice. In the consultation document on regulated activities under the Bill, which was published last year, we proposed that that position should be maintained.

Mr. Heathcoat-Amory: I am grateful to the Minister for his courtesy in at least conceding that we are raising legitimate issues. Our worry is that this has all come so late. Although the Bill was first announced nearly three years ago and has been available in draft since July 1998, the Government are still grappling with some of the concepts. In addition, we discussed clause 19 exhaustively in Committee. By now, the Government should have come to a conclusion about some of these matters. The Bill is not simply for the convenience of the Government or the authority. Outsiders and the industry in general want to know where they stand.
The situation is summed up by the stance on amendment No. 5. The Government are saying that the clause goes too wide, catches too many people and will be unenforceable, but that they will use secondary legislation to restrict its provisions. It is wrong to attempt to outlaw something in primary legislation and then authorise it in secondary legislation. People who want to know how the industry is to be regulated, who will be caught and what offences they risk falling foul of, will go to the Bill—it is the Act, as it will then be, that will be scrutinised. The single volume that is publicly available will be the fountainhead of knowledge about the regulatory system, not all the orders, the regulations and the endless flow of secondary legislation.
On the basis of the quality of legislation alone, the Government are condemned. Even now, they have not come to a conclusion on some of these matters. As a mark of that fact and to emphasise the importance that we attach to the matter and that we expect some serious amendments to be made in another place, we shall divide the House on amendment No. 5.
I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 5, in page 8, line 28, leave out
capable of having an effect

and insert
intended to be acted on by a person"—[Mr.Heathcoat—Amory.]

Question put, That the amendment be made:—

The House divided: Ayes 175, Noes 312.

Division No. 69]
[5.25 pm


AYES


Ainsworth, Peter (E Surrey)
Chapman, Sir Sydney (Chipping Barnet)


Allan, Richard



Amess, David
Clappison, James


Ancram, Rt Hon Michael
Clark, Dr Michael (Rayleigh)


Arbuthnot, Rt Hon James
Clifton-Brown, Geoffrey


Ashdown, Rt Hon Paddy
Collins, Tim


Atkinson, David (Bour'mth E)
Colvin, Michael


Atkinson, Peter (Hexham)
Cormack, Sir Patrick


Baker, Norman
Cotter, Brian


Baldry, Tony
Cran, James


Ballard, Jackie
Curry, Rt Hon David


Beggs, Roy
Davies, Quentin (Grantham)


Beith, Rt Hon A J
Davis, Rt Hon David (Haltemprice)


Bercow, John
Day, Stephen


Beresford, Sir Paul
Donaldson, Jeffrey


Blunt, Crispin
Dorrell, Rt Hon Stephen


Body, Sir Richard
Duncan, Alan


Boswell, Tim
Duncan Smith, Iain


Bottomley, Peter (Worthing W)
Evans, Nigel


Bottomley, Rt Hon Mrs Virginia
Faber, David


Brady, Graham
Fabricant, Michael


Brake, Tom
Fallon, Michael


Brooke, Rt Hon Peter
Flight, Howard


Browning, Mrs Angela
Forth, Rt Hon Eric


Bruce, Ian (S Dorset)
Fowler, Rt Hon Sir Norman


Bruce, Malcolm (Gordon)
Fox, Dr Liam


Burnett, John
Fraser, Christopher


Burns, Simon
Garnier, Edward


Burstow, Paul
George, Andrew (St Ives)


Cable, Dr Vincent
Gibb, Nick


Campbell, Rt Hon Menzies (NE Fife)
Gill, Christopher



Gillan, Mrs Cheryl





Gorman, Mrs Teresa
Öpik, Lembit


Green, Damian
Ottaway, Richard


Greenway, John
Page, Richard


Gummer, Rt Hon John
Paice, James


Hague, Rt Hon William
Paterson, Owen


Hamilton, Rt Hon Sir Archie
Pickles, Eric


Hammond, Philip
Portillo, Rt Hon Michael


Hancock, Mike
Prior, David


Hayes, John
Redwood, Rt Hon John


Heald, Oliver
Rendel, David


Heath, David (Somerton & Frome)
Robathan, Andrew


Heathcoat-Amory, Rt Hon David
Robertson, Laurence


Hogg, Rt Hon Douglas
Roe, Mrs Marion (Broxboume)


Horam, John
Ross, William (E Lond'y)


Howard, Rt Hon Michael
Rowe, Andrew (Faversham)


Howarth, Gerald (Aldershot)
Ruffley, David


Hughes, Simon (Southwark N)
Russell, Bob (Colchester)


Hunter, Andrew
St Aubyn, Nick


Jack, Rt Hon Michael
Sanders, Adrian


Jackson, Robert (Wantage)
Sayeed, Jonathan


Jenkin Bernard
Shephard, Rt Hon Mrs Gillian


Johnson Smith, Rt Hon Sir Geoffrey 
Shepherd, Richard



Smyth, Rev Martin (Belfast S)


Keetch Paul
Spelman, Mrs Caroline


Kennedy, Rt Hon Charles (Ross Skye & Inverness W)
Spicer, Sir Michael



Spring, Richard


Key, Robert
Steen, Anthony


King, Rt Hon Tom (Bridgwater)
Streeter, Gary


Kirkbride, Miss Julie
Stunell, Andrew


Kirkwood, Archy
Swayne, Desmond


Laing, Mrs Eleanor
Syms, Robert


Lait, Mrs Jacqui
Tapsell, Sir Peter



Taylor, Ian (Esher & Walton)


Lansley, Andrew
Tavlor, John M (Solihull)


Leigh, Edward
Taylor, Matthew (Truro)


Letwin, Oliver
Taylor, Sir Teddy


Lidington, David
Townend, John


Lilley,.Rt Hon Peter
Trend, Michael


Livsey, Richard
Tayler, Paul


Lloyd, Rt Hon Sir Peter (Fareham)
Tyrie, Andrew


Loughton,Tim
Viggers, Peter


Luff, Peter
Walter, Robert


MacGregor, Rt Hon John
Wardle, Charles


McIntosh, Miss Anne
Webb, Steve


MacKay, Rt Hon Andrew
Wells, Bowen


Maclean, Rt Hon David
Welsh, Andrew


Maclennan, Rt Hon Robert
Whitney, Sir Raymond


McLoughlin, Patrick
Whittingdale, John


Major, Rt Hon John
Widdecombe, Rt Hon Miss Ann


Maples, John
Wilkinson, John


Maude, Rt Hon Francis
Willetts, David


Mawhinney, Rt Hon Sir Brian
Willis, Phil


May, Mrs Theresa
Winterton, Mrs Ann (Congleton)


Michie, Mrs Ray (Argyll & Bute)
Winterton, Nicholas (Macclesfield)


Moore, Michael
Yeo, Tim


Moss, Malcolm
Young, Rt Hon Sir George


Nicholls, Patrick



Norman, Archie
Tellers for the Ayes:


Oaten, Mark
Mr. Keith Simpson and


O'Brien, Stephen (Eddisbury)
Mr. John Randall.




NOES


Ainger, Nick
Benn, Rt Hon Tony (Chesterfield)


Ainsworth, Robert (Cov'try NE)
Benton, Joe


Alexander, Douglas
Best, Harold


Allen, Graham
Betts, Clive


Armstrong, Rt Hon Ms Hilary
Blackman, Liz


Ashton, Joe
Blears, Ms Hazel


Atkins, Charlotte
Blizzard, Bob


Austin, John
Blunkett, Rt Hon David


Barnes, Harry
Boateng, Rt Hon Paul


Barron, Kevin
Borrow, David


Battle, John
Bradley, Keith (Withington)


Beard, Nigel
Bradley, Peter (The Wrekin)


Beckett, Rt Hon Mrs Margaret
Bradshaw, Ben


Bell, Stuart (Middlesbrough)
Brinton, Mrs Helen






Brown, Rt Hon Nick (Newcastle E)
Gardiner, Barry


Brown, Russell (Dumfries)
Gerrard, Neil


Browne, Desmond
Gibson, Dr Ian


Buck, Ms Karen
Gilroy, Mrs Linda


Burden, Richard
Godman, Dr Norman A


Burgon, Colin
Godsiff, Roger


Butler, Mrs Christine
Goggins, Paul


Campbell, Alan (Tynemouth)
Golding, Mrs Llin


Campbell, Ronnie (Blyth V)
Gordon, Mrs Eileen


Campbel-Savours, Dale
Griffiths, Jane (Reading E)


Cann, Jamie
Griffiths, Nigel (Edinburgh S)


Caplin, Ivor
Griffiths, Win (Bridgend)


Casale, Roger
Grocott, Bruce


Caton, Martin
Grogan, John


Cawsey, Ian
Gunnell, John


Chaytor, David
Hain, Peter


Chisholm, Malcolm
Hall, Mike (Weaver Vale)


Clapham, Michael
Hall, Patrick (Bedford)


Clark, Dr Lynda (Edinburgh Pentlands)
Hamilton, Fabian (Leeds NE)



Hanson, David


Clark, Paul (Gillingham)
Harman, Rt Hon Ms Harriet


Clarke, Charles (Norwich S)
Heal, Mrs Sylvia


Clarke, Eric (Midlothian)
Healey, John


Clarke, Rt Hon Tom (Coatbridge)
Henderson, Doug (Newcastle N)


Clarke, Tony (Northampton S)
Henderson, Ivan (Harwich)


Clwyd, Ann
Heppell, John


Coaker, Vernon
Hesford, Stephen


Coffey, Ms Ann
Hill, Keith


Coleman, Iain
Hinchliffe, David


Colman, Tony
Hodge, Ms Margaret


Connarty, Michael
Hoon, Rt Hon Geoffrey


Cooper, Yvette
Hope, Phil


Corbett, Robin
Hopkins, Kelvin


Corston, Jean
Howarth, George (Knowsley N)


Cousins, Jim
Howells, Dr Kim


Cox, Tom
Hughes, Ms Beverley (Stretford)


Cranston, Ross
Humble, Mrs Joan


Crausby, David
Hurst, Alan


Cryer, Mrs Ann (Keighley)
Hutton, John


Cryer, John (Hornchurch)
Iddon, Dr Brian


Cummings, John
Jackson, Helen (Hillsborough)


Cunningham, Rt Hon Dr Jack (Copeland)
Jamieson, David



Jenkins, Brian


Curtis-Thomas, Mrs Claire
Johnson, Alan (Hull W & Hessle)


Dalyell, Tam
Johnson, Miss Melanie (Welwyn Hatfield)


Darling, Rt Hon Alistair



Darvill, Keith
Jones, Rt Hon Barry (Alyn)


Davidson, Ian
Jones, Helen (Warrington N)


Davies, Rt Hon Denzil (Llanelli)
Jones, Ms Jenny (Wolverh'ton SW)


Davies, Geraint (Croydon C)



Davis, Rt Hon Terry (B'ham Hodge H)
Jones, Jon Owen (Cardiff C)



Jones, Dr Lynne (Selly Oak)


Dawson, Hilton
Jowell, Rt Hon Ms Tessa


Denham, John
Kaufman, Rt Hon Gerald


Dismore, Andrew
Keeble, Ms Sally


Dobbin, Jim
Keen, Alan (Feltham & Heston)


Doran, Frank
Kemp, Fraser


Dowd, Jim
Kennedy, Jane (Wavertree)


Drew, David
Khabra, Piara S


Eagle, Angela (Wallasey)
Kidney, David


Eagle, Maria (L'pool Garston)
Kilfoyle, Peter


Edwards, Huw
King, Andy (Rugby & Kenilworth)


Ellman, Mrs Louise
King, Ms Oona (Bethnal Green)


Ennis, Jeff
Kumar, Dr Ashok


Etherington, Bill
Lepper, David


Field, Rt Hon Frank
Leslie, Christopher


Fisher, Mark
Lewis, Ivan (Bury S)


Fitzpatrick, Jim
Lewis, Terry (Worsley)


Fitzsimons, Lorna
Liddell, Rt Hon Mrs Helen


Flint, Caroline
Lloyd, Tony (Manchester C)


Follett, Barbara
Love, Andrew


Foster, Rt Hon Derek
McAvoy, Thomas


Foster, Michael Jabez (Hastings)
McCafferty, Ms Chris


Foster, Michael J (Worcester)
McCartney, Rt Hon Ian(Makerfield)


Fyfe, Maria



Galloway, George
McDonagh, Siobhain





Macdonald, Calum
Sarwar, Mohammad


McDonnell, John
Savidge, Malcolm


McFall, John
Sawford, Phil


McGuire, Mrs Anne
Sedgemore, Brian


McIsaac, Shona
Shaw, Jonathan


McKenna, Mrs Rosemary
Sheerman, Barry


McNamara, Kevin
Sheldon, Rt Hon Robert


McNulty, Tony
Shipley, Ms Debra


MacShane, Denis
Short, Rt Hon Clare


Mactaggart, Fiona
Simpson, Alan (Nottingham S)


McWalter, Tony
Singh, Marsha


McWilliam, John
Skinner, Dennis


Mahon, Mrs Alice
Smith, Rt Hon Andrew (Oxford E)


Mallaber, Judy
Smith, Angela (Basildon)


Marsden, Gordon (Blackpool S)
Smith, Jacqui (Redditch)


Marsden, Paul (Shrewsbury)
Smith, Llew (Blaenau Gwent)


Marshall, David (Shettleston)
Snape, Peter


Marshall, Jim (Leicester S)
Soley, Clive


Marshall-Andrews, Robert
Spellar, John


Martlew, Eric
Squire, Ms Rachel


Maxton, John
Starkey, Dr Phyllis


Meacher, Rt Hon Michael
Steinberg, Gerry


Meale, Alan
Stewart, David (Inverness E)


Michie, Bill (Shef'ld Heeley)
Stinchcombe, Paul


Milburn, Rt Hon Alan
Stoate, Dr Howard


Miller, Andrew
Strang, Rt Hon Dr Gavin


Mitchell, Austin
Stringer, Graham


Moran, Ms Margaret
Stuart, Ms Gisela


Morgan, Ms Julie (Cardiff N)
Sutcliffe, Gerry


Morley, Elliot
Taylor, Rt Hon Mrs Ann (Dewsbury)


Morris, Rt Hon Ms Estelle (B'ham Yardley)




Taylor, Ms Dari (Stockton S)


Mountford, Kali
Taylor, David (NW Leics)


Mudie, George
Temple-Morris, Peter


Mullin, Chris
Thomas, Gareth (Clwyd W)


Murphy, Denis (Wansbeck)
Thomas, Gareth R (Harrow W)


Murphy, Jim (Eastwood)
Timms, Stephen


Naysmith, Dr Doug
Tipping, Paddy


O'Brien, Mike (N Warks)
Todd, Mark


O'Hara, Eddie
Touhig, Don


Organ, Mrs Diana
Trickett, Jon


Osborne, Ms Sandra
Truswell Paul


Pearson, Ian
Turner, Dennis (Wolverh'ton SE)


Pendry, Tom
Turner, Dr Desmond (Kemptown)


Pickthall, Colin
Turner, Neil (Wigan)


Plaskitt, James
Twigg, Derek (Halton)


Pollard, Kerry
Twigg, Stephen (Enfield)


Pond, Chris
Tynan, Bill



Vis, Dr Rudi


Pope, Greg
Walley, Ms Joan


Pound, Stephen
Ward, Ms Claire


Powell, Sir Raymond
Wareing, Robert N


Prentice, Ms Bridget (Lewisham E)
Watts, David


Prentice, Gordon (Pendle)
White, Brian


Prescott, Rt Hon John
Whitehead, Dr Alan


Primarolo, Dawn
Williams, Rt Hon Alan (Swansea W)


Prosser, Gwyn



Purchase, Ken
Williams, Alan W (E Carmarthen)


Quin, Rt Hon Ms Joyce
Williams, Mrs Betty (Conwy)


Quinn, Lawrie
Wilson, Brian


Radice, Rt Hon Giles
Winnick, David


Rammell, Bill
Winterton, Ms Rosie (Doncaster C)


Rapson, Syd
Wise, Audrey


Reed, Andrew (Loughborough)
Wood, Mike


Reid, Rt Hon Dr John (Hamilton N)
Woodward, Shaun


Rogers, Allan
Woolas, Phil


Rooker, Rt Hon Jeff
Worthington, Tony


Ross, Emie (Dundee W)
Wright, Anthony D (Gt Yarmouth)


Ruane, Chris
Wright, Dr Tony (Cannock)


Ruddock, Joan



Russell, Ms Christine (Chester)
Tellers for the Noes:


Ryan, Ms Joan
Mr. David Clelland and


Salter, Martin
Mr. Kevin Hughes.

Question accordingly negatived.

Amendment made: No. 68, in page 8, line 35, leave out
rules made under section 118
and insert "financial promotion rules".—[Mr. Robert Ainsworth.]

Clause 20

THE CLASSES OF ACTIVITY AND CATEGORIES OF INVESTMENT

Amendment made: No. 406, in page 9, line 15, after "which" insert
is carried on by way of business and".—[Mr. Robert Ainsworth.]

Clause 24

AGREEMENTS MADE BY UNAUTHORISED PERSONS

Amendment made: No. 243, in page 10, line 30, leave out "('the provider')".—[Mr. Robert Ainsworth.]

Clause 26

AGREEMENTS MADE UNENFORCEABLE BY SECTION 24 OR 25

Amendments made: No. 244, in page 11, line 33, leave out "provider" and insert
person carrying on the regulated activity concerned".
No. 245, in page 11, line 36, leave out from "not" to "that", in line 37, and insert "know".—[Mr. Robert Ainsworth.]

Clause 27

ENFORCEABILITY OF AGREEMENTS RESULTING FROM UNLAWFUL COMMUNICATIONS

Amendments made: No. 246, in page 12, line 13, leave out
as a direct or indirect result
and insert "in consequence"
No. 247, in page 12, line 20, leave out
as a direct or indirect result
and insert "in consequence".
No. 248, in page 12, line 32, leave out from "that" to end of line 4, on page 13, and insert
the enforcement conditions are met.
( ) The enforcement conditions are that it is just and equitable for the agreement or obligation to be enforced or (as the case may be) for the money or property paid or transferred under the agreement to be retained and—

(a) if the applicant made the unlawful communication, that he reasonably believed that he was not making such a communication; or
(b) if the applicant did not make the unlawful communication, that he did not know that the agreement was entered into in consequence of such a communication.

( ) 'Applicant' means the person seeking to enforce the agreement or obligation or retain the money or property paid or transferred.
( ) Any reference to making a communication includes causing a communication to be made.". —[Mr. Robert Ainsworth.]

Clause 28

AUTHORISED PERSONS

Mr. Flight: I beg to move amendment No. 34, in page 13, line 29, at end insert—
(cc) a person qualifying for authorisation under Schedule 5,

Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government amendments Nos. 73 to 76, 112 and 121.
Amendment No. 380, in clause 211, page 107, line 5, leave out "on" and insert "under an express".
Amendment No. 65, in page 107, line 15, after "which", insert—
(otherwise than under other provisions).
Amendment No. 381, in page 107, line 17, after "repurchased", insert—
in accordance with the scheme".
Amendment No. 66, in page 107, line 17, leave out
(otherwise than under other provisions)".
Amendment No. 382, in page 107, line 18, leave out "are" and insert "may be".
Amendment No. 383, in page 107, line 18, after "are", insert—
at the request of participants".
Amendment No. 384, in page 107, line 21, leave out "related to" and insert "not significantly different from".
Amendment No. 385, in page 107, line 22, at end insert—
(2A) In subsection (2)(b)(i) participants are only to be regarded as having an entitlement to have their shares or securities redeemed or repurchased in cases where the entitlement is exercisable by the participants".
Amendment No. 386, in page 107, line 27, after "State", insert—
or such other territory or country outside the United Kingdom as the Treasury may by order specify".
Amendment No. 387, in page 107, line 40, at end insert—
and in relation to any other collective investment scheme means the person, if any, having responsibility under the arrangements constituting the scheme for the day to day management of the property of the scheme.".
Amendment No. 393, in clause 236, page 118, line 37, after "that", insert—
it is desirable in order to protect the interests of participants or potential participants that".
Government amendments Nos. 450 to 453, 420, 155, 171 to 177 and 442.

Mr. Flight: Amendment No. 34 deals with the same territory that, apparently, is dealt with by the Government amendments to schedule 5. Before going into the amendments, I would like to ask the Minister whether there are likely to be further Government amendments on this matter when the Bill is in Committee in another place, or whether they believe that they have got this matter into its final form. In Committee, it was clear that many provisions would have unintended effects and needed


changing—particularly in terms of bringing investment trusts formed outside the UK under the collective investment scheme rules under certain circumstances.
Secondly, the new regulations for open-ended investment companies had not been promulgated. Since then, there has been considerable progress on that front. However, this is a practical matter concerned with the industry, and it is not a matter of principle.
Government amendments Nos. 73 to 76, 112 and 121 are not controversial. The main amendments that we stress are Nos. 380 to 387 and 393. Essentially, they repeat issues that we raised in Committee, and cover unit trusts to be constituted under an express trust, open-ended investment companies and the definition of "operator". Clause 236 would be amended for consistency. The most important amendment is No. 383, which requires the participants in an OEIC to request the redemption or repurchase of their interest in the OEIC.
Amendments Nos. 65 and 66 are new amendments to the OEIC definition which we have made to make sure that investment trusts are not caught by it. The amendments move the exemption for the repurchase of shares pursuant to the relevant provisions of the Companies Act 1985, so that it covers both limbs of clause 211(2)(b)(i), and not just the second limb.
Government amendments Nos. 450 to 453 are not controversial, while amendments Nos. 20 and 155, 171, 177 and 442 are all essentially technical and relate to schedule 5.

Miss Melanie Johnson: Amendment No. 34 raises a point that was discussed in Committee—namely, adding a further class of person requiring authorisation under the Bill to clause 28:
a person qualifying for authorisation under Schedule 5".
However, we believe that subsection (d) should already include
a person qualifying for authorisation under Schedule 5
and so the amendment is unnecessary. I would be grateful if the hon. Member for Arundel and South Downs (Mr. Flight) would consider withdrawing the amendment.
The hon. Gentleman asked whether we thought that there was a need further to amend clause 28. We think that clause 28 is fine as it stands, and we do not expect any further amendments—although one cannot be absolutely certain.
Amendments Nos. 65, 66 and 381 to 387 concern open-ended investment companies. Hon. Members will know that, on 28 January, we issued a consultation draft on the OEIC regulations under clause 237. This particular group of amendments are all aimed at the definition of an OEIC. We debated this issue in Committee, when a number of substantially similar amendments were tabled by the Opposition.
I said at that time that we were considering whether the definition might be improved. We are mindful of the need for greater certainty, and we are working on the definition. Features that we are looking at in bringing forward a definition include whether shareholders expect their shares to be redeemed or repurchased, the regularity of repurchases or redemptions and the proportion of capital in relation to which the right or redemption should apply. This is a technically difficult area, and it is important that we get these matters right in the Bill.

The hon. Gentleman said that he took no exception to a number of the Government amendments, so I shall address amendment No. 393. The amendment was debated in Committee, and I said that we would review the urgent intervention powers in the Bill at a later date, and we will do so. I give a continuing undertaking on that subject. I will not speak to any of the Government amendments unless anyone has any particular queries.

Mr. Flight: I thank the Minister for her comments and, in the light of them, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Clause 30

WITHDRAWAL OF AUTHORISATION BY THE AUTHORITY.

Mr. Timms: I beg to move amendment No. 69, in page 14, line 15, leave out from "person" to end of line 16.

Mr. Deputy Speaker: With this, it will be convenient to discuss Government amendments Nos. 81, 82, 89 and 98.

Mr. Timms: These amendments remove the existing provision in clause 30 for retaining the authorisation of persons who no longer have permission for any regulated activity. Amendments Nos. 69, 89 and 98 provide instead that, under clauses 39 and 40, the FSA will be able to keep an empty permission in force, but may need to cancel it once it is satisfied that this is no longer necessary.
We are not just talking about preventing wrongdoers from escaping the jurisdiction of the FSA. The power could be used, for example, to suspend an authorised person's activities while an aspect of his business is investigated urgently. Following the investigation, his substantive permissions could be restored without forcing him to make a fresh application under clause 36.
Amendments Nos. 81 and 82 are consequential, and limit clause 36 to fresh applications by persons who are not already authorised under the Bill. The amendments exclude applications from persons who already have a permission under part IV. They can apply instead for a variation of their existing permission under clause 39.
I hope that the amendments will meet with the approval of the House.

Mr. Heathcoat-Amory: I thought that I understood the Bill, but I am a little baffled by the amendment. I think that I see the intention behind it, but as the clause stood, the FSA was to be allowed to maintain someone's status as an authorised person even though the person concerned might not have permission to carry on a regulated activity. From what I understand of the amendment, the authority will be able to keep a permission alive even though the authorised person concerned may not any longer be performing any regulated activities. That is a consequence of the fact that his permission may have been varied.
The amendment would introduce a bizarre concept. Other parts of the Bill might have been drafted by Lewis Carroll, but this seems to break new ground. We were trying, I thought, to make the Bill easy to understand, so perhaps the amendment could have been drafted differently or we could stick with the previous wording,


which was at least logically possible. If a permission is to be kept alive when the person to whom it was granted no longer has it because it has been withdrawn or varied, that requires some explanation.

Mr. Timms: The benefit of keeping an empty permission in force is that it will allow the FSA to retain its jurisdiction over the firm involved. For example, it may be investigating a possible disciplinary matter or it may be necessary for the firm to complete a past business review. That is the reason for the need to keep the permission alive.
The amended provision will make it clear that the FSA has to cancel a firm's permission once the FSA is satisfied that it is no longer necessary. The previous formulation in clause 30 only required the FSA to have good reason for not withdrawing a person's authorisation. The FSA's refusal of an application to cancel a firm's permission will be subject to the usual procedural safeguards. It is necessary to have the mechanism contained in the amendment to allow the FSA to retain its jurisdiction for a time while an investigation or other matter is in hand.
Amendment agreed to.

Clause 31

EEA FIRMS

Amendments made: No. 70, in page 14, line 17, after "under" insert "Part II of'.
No. 71, in page 14, line 23, leave out "Schedule 3 authorisation" and insert—
authorisation under Part II of Schedule 3".
No. 72, in page 14, line 25, after "under" insert "Part II of".—[Miss Melanie Johnson.]

Clause 33

PART XVI QUALIFIERS

Amendments made: No. 73, in page 14, line 34, leave out "Part XVI qualifier" and insert—
person authorised as a result of paragraph 1(1) of Schedule 5".
No. 74, in page 14, line 35, leave out "a Part XVI qualifier" and insert "such a person".
No. 75, in page 14, line 36, leave out "Part XVI qualifier" and insert—
person authorised as a result of paragraph 1(1) of Schedule 5".
No. 76, in page 14, line 37, leave out from "to" to end of line 38 and insert—
be a person so authorised".—[Miss Melanie Johnson.]

Clause 34

EXEMPTION ORDERS

Amendments made: No. 77, in page 15, line 5, leave out
persons for the purposes of section 17
and insert "from the general prohibition".
No. 78, in page 15, line 6, leave out from second "person" to end of line 7 and insert—

as a result of an exemption order if he has a Part IV permission".—[Miss Melanie Johnson.]

Mr. Flight: I beg to move amendment No. 199, in page 15, line 14, at end insert—
(5) No exemption order to which subsection (7) applies may be made unless a draft of the order has been laid before Parliament and approved by a resolution of each House.
(6) An exemption order to which subsection (7) does not apply shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(7) This subsection applies to an exemption order which:

(a) is the first order to be made under this section in respect of a particular person; or
(b) varies an order previously made so as to vary or remove an exemption."

Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government amendments Nos. 427 and 428.
Amendment No. 53, in clause 374, page 195, line 3, after "section", insert "110(6A), 111(6),".
Government amendments Nos. 430 to 436.

Mr. Flight: This is a ragbag group of amendments. Amendment No. 199 requires that Treasury exemption orders in respect of people requiring to be authorised persons should be laid before both Houses, both for any initial exemption and for any variation. Amendment No.53 would add two territories of orders requiring the positive affirmation of both Houses and relates back to points that we stressed earlier about limiting the FSA's powers to regulate non-regulated activities and the activities of regulated UK businesses overseas. In essence, the amendments would require affirmative resolutions of both Houses for any new rules made that related to restrictions on businesses or marketing outside the UK and to any extension of non-regulated activities.
Government amendment No. 427 would grant the Lord Chancellor powers to make rules in respect of the tribunal by statutory instrument. As I understand it, the rest are consequential. The remaining Government amendments would require a draft of regulations to be put before both Houses for affirmative order, and we would certainly support those proposals.

Miss Melanie Johnson: Amendment No. 199 proposes that an exemption order under clause 34 should be made subject to affirmative resolution procedure when it is first made and thereafter when it is replaced and certain exemptions are removed. Clearly, there is a parallel with what is provided for in amendment No. 199 and the provision in the Bill for making the first regulated activities order under clause 20 and subsequently adding to the scope of regulated activities. That is to say that both work together to define the scope of regulation under the Bill. However, the parallel is far from exact.
The effect of the regulated activities order under clause 20 will define the scope of regulation. The effect, therefore, will be to bring within the FSA's remit a wide range of activities and firms. An exemption order will be different. Our intention is to exempt only narrow categories of person whose activities are not generally such as to give rise to risk to consumers. On the one hand there will be bodies such as the Crown and the Bank of


England, who because of their nature, have never been serious candidates for regulation under the financial services legislation.
On the other hand, there will be a series of bodies that do not carry on regulated activities within the normal sense but which do things that just might qualify at the margins as regulated activities. A good example is an organisation such as a trade union or a charitable organisation that raises and invests money for the indirect benefit of its members. The purpose of the exemption in those cases is to make it absolutely clear that they can continue to do those things without fear of committing an offence.
Even to the extent that the activities of such bodies might qualify as regulated activities for the purposes of the Bill, it would happen in a way where there was no potential for consumer detriment. For example, with trade union funds, members contribute to the organisation for a number of reasons, but they do not contribute to make a return on those contributions. Any such benefits would be seen as a bonus.
I am sure that no one would wish to object to our proposals for exemptions in such cases. Regulation is really not necessary. Of course, were a trade union or charity to establish a high street bank as a side line, their exemption would need to be reviewed—and most likely would be withdrawn—in order to ensure the protection of potential depositors.
In my view, the negative resolution procedure provided for in the Bill is the most appropriate for an order of that kind. The Delegated Powers and Deregulation Committee in the other place considered the powers in a draft of the Bill at the same time the Committee chaired by Lord Burns considered the draft more generally. The Delegated Powers and Deregulation Committee did not recommend a different procedure and I therefore propose not to accept this amendment. I hope that the hon. Member for Arundel and South Downs (Mr. Flight) will withdraw his amendment.
The Government amendments in this group, to clauses 373 and 374 are largely technical. The hon. Gentleman raised a point about one particular Government amendment, but I have forgotten which one. If he wishes me to make a response, I would be grateful if he alerted me to which one it was.

Mr. Flight: We did not require a specific response to any of the Government amendments. We are happy to withdraw amendment No. 199, although the territory is tricky and could be subject to further discussion in the other place. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 35

EXEMPTION OF APPOINTED REPRESENTATIVES

Amendments made: No. 79, in page 15, line 15, after "person" insert—
(other than an authorised person)".
No. 80, in page 15, line 24, leave out "an exempt person" and insert—
exempt from the general prohibition".—[Miss Melanie Johnson.]

Clause 36

APPLICATION FOR PERMISSION

Amendments made: No. 81, in page 16, line 10, after "may" insert "not".
No. 82, in page 16, line 11, leave out "does not have" and insert "has".
No. 83, in page 16, line 14, at end insert—
(2A) An EEA firm may not apply for permission under this section to carry on a regulated activity which it is, or would be, entitled to carry on in exercise of an EEA right, whether through a United Kingdom branch or by providing services in the United Kingdom.".—[Miss Melanie Johnson.]

Clause 37

GIVING PERMISSION

Amendments made: No. 84, in page 16, line 22, at end insert—
( ) If the applicant—

(a) in relation to a particular regulated activity, is exempt from the general prohibition as a result of section 35(1) or an order made under section 34(1), but
(b) has applied for permission in relation to another regulated activity,

the application is to be treated as relating to all the regulated activities which, if permission is given, he will carry on.
( ) If the applicant—

(a) in relation to a particular regulated activity, is exempt from the general prohibition as a result of section 260(2) or (3), but
(b) has applied for permission in relation to another regulated activity,

the application is to be treated as relating only to that other regulated activity.".

No. 85, in page 16, line 23, leave out subsection (3).—[Miss Melanie Johnson.]

Clause 38

IMPOSITION OF REQUIREMENTS

Amendments made: No. 86, in page 16, line 38, leave out from "include" to end of line 40 and insert—
such requirements as the Authority considers appropriate.".
No. 87, in page 16, line 41, leave out subsection (2).—[Miss Melanie Johnson.]

Clause 39

VARIATION ETC AT REQUEST OF AUTHORISED PERSON

Amendment made: No. 88, in page 17, line 20, leave out subsection (2).—[Miss Melanie Johnson.]

6 pm

Clause 39

VARIATION ETC AT REQUEST OF AUTHORISED PERSON

Mr. Flight: I beg to move amendment No. 206, in page 17, line 27, after "it", insert "after receiving representations".

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 91, 94, 95, 97 and 99 to 103.

Mr. Flight: As the Government will be aware, one of the problematic areas with regulation to date has been the


approval or turning down of applications to become authorised, and any dispute arising from that. Amendment No. 206 would simply require that the FSA should first receive representations from the relevant applicant before refusing an application. It is designed, in part, to save time and hassle with the complaints investigator which, I repeat, is one of the main areas in which complaints of FSA conduct has arisen.
The other amendments in the group are Government amendments. They seem to redraft clause 40, focusing the FSA's powers regarding cancelling permissions on protective as opposed to punitive measures, specifically on failing
to satisfy the threshold conditions",
and failing to have carried on a registered activity for 12 months. However, we are not comfortable with those provisions described as generally protecting the interests of consumers or potential consumers in relation to a regulated activity. As we see it, that should be, and is, part of the threshold conditions, and would be better incorporated in the first ground just described. The provisions give the FSA carte blanche to invent a new ground to vary or cancel permission, using its powers under clause 40 in whatever way it sees fit. I cannot think that that is really the Government's intention.

Mr. Timms: The Government's amendments in this group deal with the FSA's own-initiative power to vary or cancel an authorised person's permission under clause 40. Amendments Nos. 91, 94 and 95 redraft clause 40(1), focusing that power on protective measures, as opposed to the punitive measures provided for under part XIII. I think that that move would be generally welcomed.
The grounds for the FSA to take action under the clause to vary or cancel a part IV permission are to be limited to failing, or being likely to fail, to satisfy the threshold conditions, as case A in the text provides; failing to carry on a regulated activity during a period of 12 months, as case B provides; and protecting the interests of consumers or potential consumers in relation to regulated activity, as described in case C. The former grounds of contravening or being likely to contravene a requirement and recklessly or knowingly misleading the FSA, which both came under case B, are now omitted.
Clearly, these matters may inform the FSA's assessment of the extent to which the authorised person meets the threshold conditions or may give grounds for considering that the interest of consumers may be under threat. However, they will not be grounds in their own right for action under this clause. The purpose is to establish a clearer line between the grounds for varying permission and the grounds for taking disciplinary action under part XIII of the Bill. The remaining amendments are consequential or minor drafting amendments.
I listened to the explanation of amendment No. 206. I did not understand immediately whether the amendment's reference to "representations" meant representations from consumers or the applicant, but the hon. Member for Arundel and South Downs (Mr. Flight) made it clear that it refers to the applicant.
The Bill already provides for representations from the applicant—first, when he makes his application; secondly, if the authority proposes to refuse an application, clause 49

ensures that he will have an opportunity to make representations through the warning notice, decision notice mechanism in the usual way. I think that it would be quite a serious constraint if the FSA were not allowed to refuse an application simply because no representations had been forthcoming. I think that we would all agree that that is not right, but it could be implied by the amendment. There is a mechanism through the arrangements under clause 49, and I hope that the hon. Gentleman accepts that that is adequate and feels able, on that basis, to withdraw amendment No. 206.

Mr. Flight: There is a slight issue as to whether clause 49 needs the amendment to tie the two things together. I think that there is a debate as to whether it would be better if the FSA needed to have received representations before declining an applicant—it could save time and hassle. However, on the grounds that the main part of our intent is covered elsewhere, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 89, in page 17, line 31, at end insert—
( ) If, as a result of a variation of a Part IV permission under this section, there are no longer any regulated activities for which the authorised person concerned has permission, the Authority must, once it is satisfied that it is no longer necessary to keep the permission in force, cancel it.".
No. 90, in page 17, line 32, after "permission" insert "under this section".—[Miss Melanie Johnson.]

Clause 40

VARIATION ETC ON THE AUTHORITY"S OWN INITIATIVE

Amendments made: No. 91, in page 17, line 36, leave out from "vary" to "in" and insert—
a Part IV permission in any of the ways mentioned in section 39(1) or cancel it".
No. 92, in page 17, line 39, leave out from "that" to "in", in line 40, and insert—
the authorised person is failing, or is likely to fail, to satisfy the threshold conditions".
No. 93, in page 17, line 41, leave out "the authorised person concerned" and insert "he".
No. 94, in page 18, line 3, leave out from beginning to end of line 7.
No. 95, in page 18, line 14, leave out from beginning to end of line 24.
No. 96, in page 18, line 25, leave out subsection (2).
No. 97, in page 18, line 29, leave out subsection (3).
No. 98, in page 18, line 32, at end insert—
( ) If, as a result of a variation of a Part IV permission under this section, there are no longer any regulated activities for which the authorised person concerned has permission, the Authority must, once it is satisfied that it is no longer necessary to keep the permission in force, cancel it.".
No. 99, in page 18, line 35, leave out "Part IV".
No. 100, in page 18, line 37, leave out subsection (5).—[Miss Melanie Johnson.]

Clause 41

VARIATION OF PERMISSION ON ACQUISITION OF CONTROL

Amendments made: No. 101, in page 18, line 42, leave out
as mentioned in section 150".
No. 102, in page 19, line 7, at end insert—
( ) Any reference to a person having acquired control is to be read in accordance with Part XI.".—[Miss Melanie Johnson.]

Clause 42

EXERCISE OF POWERS IN SUPPORT OF OVERSEAS REGULATOR

Amendment made: No. 103, in page 19, line 25, leave out from "any" to "may", in line 26, and insert—
case in which the Authority does not consider that the exercise of its own-initiative power is necessary in order to comply with a Community obligation, it"—[Miss Melanie Johnson.]

Clause 43

PROHIBITIONS AND RESTRICTIONS

Mr. Timms: I beg to move amendment No. 104, in page 20, line 1, leave out from "Authority" to end of line 12 and insert—

(a) on giving a person a Part IV permission, imposes an assets requirement on him; or
(b) varies an authorised person's Part IV permission so as to alter an assets requirement imposed on him or impose such a requirement on him.

(1A) A person on whom an assets requirement is imposed is referred to in this section as "A".
(1B) "Assets requirement" means a requirement under section 38—

(a) prohibiting the disposal of, or other dealing with, any of A's assets (whether in the United Kingdom or elsewhere) or restricting such disposals or dealings; or
(b) that all or any of A's assets, or all or any assets belonging to consumers but held by A or to his order, must be transferred to and held by a trustee approved by the Authority."

Mr. Deputy Speaker: With this it will be convenient to discuss the following: amendment No. 208, in page 20, line 8, after "by", insert "A".
Amendment No. 209, in page 20, line 15, leave out
in connection with the imposition
and insert "for the purposes.".
Government amendment No. 106.
Amendment No. 210, in page 20, line 24, after insert—
or any other duty which it may owe A".
Government amendments Nos. 107 to 109.
Amendment No. 211, in page 20, line 40, after "liquidator", insert "or administrator".
Government amendment No. 110.
Amendment No. 212, in page 20, line 43, after "A", insert "or the Authority".
Amendment No. 213, in page 20, line 46, after "A", insert "or the Authority".
Government amendments Nos. 111 and 127.

Mr. Timms: This group contains a number of drafting amendments to clause 43, which deals with the effect that prohibitions or restrictions imposed as a requirement by the FSA on a firm's dealings or assets may have on third parties, such as the firm's bank.
The Opposition amendments, which are largely drafting amendments, are interesting. We are particularly interested in the suggestion in amendment No. 208 to insert "A". That amendment would be rendered ineffective by amendment No. 104, but the drafting suggestion has now been incorporated in that amendment. Amendment No. 208 was tabled in time for us to do that, and we are grateful to Conservative Members for bringing that suggestion forward.
Amendment No. 209 is also the subject of amendments Nos. 104 and 105 and other consequential amendments, which have the effect of removing the distinction between the main requirement and any connected requirement that amendment No. 209 seeks to clarify. I hope that Conservative Members will be satisfied with that arrangement.
Amendments Nos. 210 to 213 make further interesting drafting suggestions, and we would like to consider them further with the parliamentary draftsman. On that basis, I hope that the amendments will be withdrawn.

Mr. Heathcoat-Amory: I am grateful to the hon. Gentleman for having accepted one of our amendments, or at least incorporating it in one of his. We realise that amendment No. 208 is not exactly the stuff by which Governments rise and fall. Nevertheless, it was an attempt to tidy up the clause and make it a little clearer by ensuring that in referring to A's assets we also include assets belonging to investors but held by A, or to A's order. I think that that phrase is a little clearer than the one that left out one of the A's. The Minister said that that had been graciously accepted.
I should mention a few other amendments. The Minister kindly said that he was interested in them, which is code for saying that he may be minded to accept some of them. Amendment No. 211 was intended to make it clear that references to a liquidator should also include administrators. Today, companies frequently go not into liquidation but into administration in an attempt to keep going and recover assets. I think that we have copied that practice from the United States, although I am no expert. Usually, administration is preferable if there is an opportunity to save the firm concerned. The Minister may consider whether references to the liquidator should include the administrator too.
I am not sure whether the Minister was minded to accept amendment No. 212. If he was, he would be changing the attitude that he and the Economic Secretary adopted in Committee, where they appeared to think the amendment unnecessary. Its purpose is to ensure that assets held by trustees are recoverable for investors; otherwise, someone under investigation could plant assets in the hands of trustees. I assume that that is the reason behind the provision in the Bill, and it is a valid reason.
However, our point is that if the principal fails to give notice to the trustee, the authority should have powers to give written notice to the trustee. There is no great danger here of excessive bureaucracy, or of one body leaving it to the other to issue the written notice. In all cases, I expect that the authority would issue a written notice to


the trustee. If the authorised person also wrote, then two pieces of paper would exist—but it is better to be safe than sorry. I urge the Government at least to consider amendment No. 212, possibly with a view to accepting it in the other place.

Mr. Timms: I am grateful to the right hon. Gentleman for those remarks, and we will reconsider amendment No. 212 in the light of what he has said.
Amendment agreed to.
Amendments made: No. 105, in page 20, line 13, leave out subsection (2)
No. 106, in page 20, line 18, leave out "(1)(a)" and insert "(1B)(a)".
No. 107, in page 20, line 34, leave out "(1)(b)" and insert "(1B)(b)".
No. 108, in page 20, line 35, after "released" insert "or dealt with".
No. 109, in page 20, line 37, leave out "(1)(b)" and insert "(1B)(b)".
No. 110, in page 20, line 42, leave out "(1)(b)" and insert "(1B)(b)".
No. 111, in page 21, line 8, leave out "(1)(b)" and insert "(1B)(b)".—[Miss Melanie Johnson.]

Clause 45

AUTHORITY'S DUTY TO CONSIDER OTHER PERMISSIONS ETC.

Amendments made: No. 112, in page 21, line 28, leave out "qualifying for authorisation under" and insert
authorised as a result of".
No. 113, in page 21, line 33, at end insert "and".
No. 114, in page 21, line 34, leave out from "Treaty" to end of line 35.—[Miss Melanie Johnson.]

Clause 48

WHEN PERMISSION IS GIVEN

Amendment made: No. 407, in page 22, line 32, leave out clause 48.—[Miss Melanie Johnson.]

Clause 53

PROHIBITION ORDERS

Amendment made: No. 116, in page 25, line 1, leave out subsection (7).—[Miss Melanie Johnson.]

Clause 58

DETERMINATION OF APPLICATIONS

Amendment made: No. 117, in page 27, line 11, leave out "rules under section 110" and insert "general rules".—[Miss Melanie Johnson.]

Clause 61

CONDUCT: STATEMENTS AND CODES

Amendments made: No. 249, in page 28, line 24, after "code" insert 'issued'.
No. 250, in page 28, line 31, at end insert—
( ) The Authority may at any time alter or replace a statement or code issued under this section.
( ) If a statement or code is altered or replaced, the altered or replacement statement or code must be issued by the Authority.
( ) A statement or code issued under this section must be published by the Authority in the way appearing to the Authority to be best calculated to bring it to the attention to the public.".
No. 251, in page 28, line 32, leave out "issued under subsection (2)" and insert—
published under this section and in force".
No. 252, in page 28, line 37, at end insert—
( ) A person is not to be taken to have failed to comply with a statement of principle if he shows that, at the time of the alleged failure, it or its associated code of practice had not been published.
( ) The Authority must, without delay, give the Treasury a copy of any statement or code which it publishes under this section.".
No. 253, in page 28, line 40, leave out "for different cases" and insert—
in relation to persons, cases or circumstances of different descriptions.".
No. 254, in page 28, line 42, at end insert—
( ) The Authority may charge a reasonable fee for providing a person with a copy of a statement or code published under this section.".—[Miss Melanie Johnson]

Clause 62

STATEMENTS AND CODES: PROCEDURE

Amendments made: No. 255, in page 29, line 1, leave out from beginning to "must" and insert—
Before issuing a statement or code under section 61, the Authority".
No. 256, in page 29, line 4, leave out "a statement" and insert—

"(a) a cost benefit analysis; and
(b) notice".

No. 257, in page 29, line 5, leave out
before the end of a specified period
and insert "within a specified time".
No. 258, in page 29, line 7, leave out "a" and insert "the proposed".
No. 259, in page 29, line 8, leave out "(2)" and insert "(2)(b)".
No. 260, in page 29, line 8, at end insert—
(3A) If the Authority issues the proposed statement or code it must publish an account, in general terms, of—

(a) the representations made to it in accordance with subsection (2)(b); and
(b) its response to them.

(3B) If the statement or code differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant—

(a) the Authority must (in addition to complying with subsection (3A)) publish details of the difference; and
(b) those details must be accompanied by a cost benefit analysis.

(3C) Neither subsection (2)(a) nor subsection (3B)(b) applies if the Authority considers—

(a)that, making the appropriate comparison, there will be no increase in costs; or
(b) that, making that comparison, there will be an increase in costs but the increase will be of minimal significance.".

No. 261, in page 29, line 9, leave out "Subsection (1) does" and insert—
Subsections (1) to (3C) do".
No. 262, in page 29, line 10, leave out "it" and insert "them".
No. 263, in page 29, line 12, leave out paragraph (a).
No. 264, in page 29, line 13, leave out from "61" to end of line 14.
No. 265, in page 29, line 15, leave out "the statement or code" and insert—
a draft published under subsection (1)".
No. 266, in page 29, line 16, at end insert—
( ) This section also applies to a proposal to alter or replace a statement or code.".
No. 267, in page 29, line 17, leave out subsections (7) to (12).
No. 268, in page 29, line 28, at end insert—
( ) 'Cost benefit analysis' means an estimate of the costs together with an analysis of the benefits that will arise—

if the proposed statement or code is issued; or
if subsection (3B)(b) applies, from the statement or code that has been issued.

() 'The appropriate comparison' means—

(a) in relation to subsection (2)(a), a comparison between the overall position if the statement or code is issued and the overall position if it is not issued;
(b) in relation to subsection (3B)(b), a comparison between the overall position after the issuing of the statement or code and the overall position before it was issued.".—[Miss Melanie Johnson.]

Clause 63

DISCIPLINARY POWERS

Amendment made: No. 269, in page 30, line 11, leave out from "when" to "is" and insert "a warning notice.—[Miss Melanie Johnson.]

Clause 67

PRACTICE STATEMENTS AND GUIDANCE

Amendment made: No. 270, in page 31, line 5, leave out from "and" to end of line 11 and insert—
issue a statement of its policy with respect to—

(a) the imposition of penalties under section 63; and
(b) the amount of penalties under that section.".—[Miss Melanie Johnson.]

Mr. Timms: I beg to move amendment No. 271, in page 31, line 11, at end insert—
( ) The Authority's policy in determining what the amount of a penalty should be must include having regard to—

(a) the seriousness of the misconduct in question in relation to the nature of the principle or requirement concerned;
(b) the extent to which that misconduct was deliberate or reckless; and
(c) whether the person on whom the penalty is to be imposed is an individual.".

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendment No. 278.

Mr. Timms: Amendment No. 271 is a response to the committee chaired by Lord Burns. In the Standing

Committee, we introduced amendments to equivalent provisions in clause 67 in order to set out several specific factors that the FSA should take into account when deciding on the level of penalty to be imposed. Amendment No. 271 sets out those factors for clause 67, and they mirror those in clause 185.
Briefly, those factors are: the seriousness of the misconduct in question; the extent to which the misconduct was deliberate or reckless; and whether the person on whom the penalty is to be imposed is an individual.
6.15 pm
Amendment No. 278 introduces consistency with the equivalent provisions for discipline under part VI on official listing, part VII on market abuse and part XIII on disciplinary measures for authorised persons. The amendment imposes an obligation on the FSA to have regard to published policy in force at the time when the misconduct took place. These are points of consistency to standardise clause 67 with equivalent provisions elsewhere in the Bill.
Amendment agreed to.
Amendments made: No. 272, in page 31, line 12, leave out "any material published" and insert—
or replace a statement issued".
No. 273, in page 31, line 14, leave out from "If' to end of line and insert—
a statement issued under this section is altered or replaced, the Authority must issue the altered or replacement statement.".
No. 274, in page 31, line 15, leave out subsection (5) and insert—
(5) The Authority must, without delay, give the Treasury a copy of any statement which it publishes under this section.".
No. 275, in page 31, line 17, leave out subsection (6) and insert—
(6) A statement issued under this section must be published by the Authority in the way appearing to the Authority to be best calculated to bring it to the attention of the public.".
No. 276, in page 31, line 19, at end insert—
( ) The Authority may charge a reasonable fee for providing a person with a copy of the statement.".
No. 277, in page 31, line 20, leave out subsection (7).
No. 278, in page 31, line 25, leave out subsection (8) and insert—
(8) In exercising, or deciding whether to exercise, its power under section 63 in the case of any particular misconduct, the Authority must have regard to any statement of policy published under this section and in force at the time when the misconduct in question occurred.".
No. 279, in page 31, line 28, leave out subsection (9).—[Miss Melanie Johnson.]

Clause 71

APPLICATIONS FOR LISTING

Mr. Timms: I beg to move amendment No. 408, in page 33, line 5, leave out "company" and insert "body".

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 409 to 417.

Mr. Timms: As hon. Members will have realised, we are not yet able to introduce amendments to part VI and


other parts of the Bill to take account of the decision to transfer the competent authority function from the London stock exchange to the FSA. Changes of that sort at this stage in the Bill's progress raise complicated drafting issues, although the policy itself is relatively straightforward. We shall produce amendments consequential to the proposed transfer in another place.
The amendments make relatively minor changes to part VI, largely in response to points raised by the Law Society, to which we are grateful. The exceptions are the changes to clauses 80 and 90, which change coverage of criminal offences to ensure equal treatment of all who might breach the prohibitions of those clauses. I hope that the amendments will be widely welcomed.

Mr. Flight: The Opposition welcome the amendments in the main, but we wonder why the Government felt it right to follow the Law Society's recommendation to make breaches by authorised firms a criminal offence, like breaches by anyone else. That contrasts with the present position, and breaks the general rule that contraventions of regulatory rules by authorised firms are not criminal offences. It would be desirable to have the Government's thinking on that point on the record.

Mr. Tim Loughton: I, too, should make a couple of points because I am slightly alarmed that we have before us only a few technical amendments when we were promised in Committee that there would be more substantial and detailed amendments, particularly to clause 87 and the listing details. I too would like an answer on why amendment No. 410 provides that authorised firms should face criminal charges if they fail to publish a prospectus.
In Committee, we raised serious problems concerning the Chinese walls between the FSA' s roles as a competent authority and as a regulator. The balance seems not to be right. If the FSA fails to act on listing particulars in a listing application within six months, the application will be deemed to have failed, regardless of the fact that that may be entirely down to the incompetence of officials acting for the FSA.
The amendment seems to swing the scales the other way, in that criminal charges can be brought against authorised firms which issue prospectuses, while incompetence from the FSA is subject to full immunity. I refer the House to the questions that we put in Standing Committee A on the listing particulars; they are recorded in my contribution to the Committee's proceedings on 28 October 1999, in Hansard, from column 607 onwards. The Minister promised us further details, and we assumed that we would have received them by this stage.
We need further information as to how the fine income from listing abuse will be used. Will it be rebated against fees or against the legal aid scheme? In France, for example, that income goes straight to the Treasury rather than to the equivalent of the FSA. How will the Chinese walls work, between the competent authority bringing in more revenue in its role as rule maker and enforcing the rule book? There will be a temptation to relax the rules in order that more companies should be in the listing, thus providing more listing revenue for the FSA in its role as competent authority.
That raises the issue that, currently, the stock exchange, as the competent authority, is effectively monitored by the regulator—the FSA. Who will monitor the FSA when it acts

as the competent authority? Those additional powers are open to abuse. How will those additional roles be resourced? As we shall see when we discuss later clauses, that is a most important question, given the extra functions that the FSA is apparently taking on.
What happens if the FSA loses its role as the competent authority? There are many questions. It has been many months since the late summer, when it was announced that the role of the stock exchange as competent authority was to be given over to the FSA. It is disappointing that we can consider only a few technical amendments at present, when much more meat should have been provided for us on Report. I very much want an answer to the questions that we have raised on amendment No. 410.

Mr. Timms: The whole House welcomes the moves towards competition in this matter. We welcome NASDAQ's announcement that it wants to establish its European base in London. We also welcome other initiatives.
Some far-reaching amendments will be needed to allow us to introduce competition. In Committee, my hon. Friend the Economic Secretary to the Treasury pointed out that we should table such amendments in due course. As I said earlier, we cannot yet do that, but we shall be able to do so in another place.
The hon. Members for Arundel and South Downs (Mr. Flight) and for East Worthing and Shoreham (Mr. Loughton) asked questions about amendment No. 410 and clause 80. Clause 80 provides that it is unlawful to offer securities to the public in the UK, prior to the publication of a prospectus, in circumstances where clause 79 requires such a prospectus. It sets out the consequences of such an unlawful action, dealing differently with authorised persons and all other people.
If an authorised person engages in an unlawful offer of that sort, he is treated as having contravened rules, and may be subject to disciplinary action by the FSA. If any other person takes similar action, he will be guilty of a criminal offence and will be liable to a fine or to imprisonment.
We reviewed the case for that stark difference in treatment and concluded that we should not continue to distinguish between the authorised and the unauthorised in that way. The amendments subject all persons to the same offence and to the same penalties. That outcome could have been achieved by providing that both should be regarded as contravening FSA rules—that too would have been consistent.
However, it is a fundamental principle that only those persons who want to undertake financial services business should be the subject of FSA rules. It is hard to see how the system could work in any other way. How would the FSA discipline people breaking its rules who were not authorised? It would obviously not be able to withdraw authorisation.
In answer to the question, "Why introduce a criminal offence?", we are primarily driven by consistency. There is a lack of clarity as to whether the offence, when committed by an authorised person, would be regarded as a criminal matter under the European convention on human rights. As I noted, it is difficult to understand why behaviour committed by unregulated persons should be criminal, but when committed by regulated persons—who should be more expert—it is not. The amendments make matters more consistent.
Who will look after the FSA? The FSA will be accountable to Treasury Ministers—as the stock exchange is at present. However, there will be a much fuller consideration of those matters when amendments are tabled in the other place.
Amendment agreed to.

Clause 77

EXEMPTIONS FROM DISCLOSURE.

Amendment made: No. 409, in page 35, line 42, after "in" insert "listing".—[Miss Melanie Johnson.]

Clause 80

PUBLICATION OF PROSPECTUS.

Amendments made: No. 410, in page 37, line 7, leave out subsection (2).
No. 411, in page 37, line 9, leave out "Any other" and insert "A".—[Miss Melanie Johnson.]

Clause 83

COMPENSATION FOR FALSE OR MISLEADING PARTICULARS.

Amendments made: No. 412, in page 38, line 18, leave out
But this section is subject to the
and insert—
Subsection (1) is subject to".
No. 413, in page 38, line 26, at end insert—
( ) Subsection (4) is subject to exemptions provided by Schedule 9".
No. 414, in page 38, line 41, after "particulars'" insert—
, in subsection (1) and Schedule 9,".—[Miss Melanie Johnson.]

Clause 86

STATEMENT OF POLICY.

Amendments made: No. 280, in page 39, line 38, leave out "publish" and insert "issue".
No. 281, in page 39, line 41, leave out from "to" to end of line 42 and insert—
any policy statement published under this section and in force at the time when the contravention in question occurred.".
No. 282, in page 40, line 1, leave out from "publish" to end of line 3 and insert—
a statement issued under this section in the way appearing to the competent authority to be best calculated to bring it to the attention of the public.".
No. 283, in page 40, line 3, at end insert—
( ) The Authority may charge a reasonable fee for providing a person with a copy of the statement.".
No. 284, in page 40, line 4, leave out subsection (6).—[Miss Melanie Johnson.]

Clause 89

OBLIGATIONS OF ISSUERS OF LISTED SECURITIES.

Amendment made: No. 415, in page 40, line 35, leave out "securities were listed" and insert—
listed securities were admitted to the official list".—[Miss Melanie Johnson.]

Clause 90

ADVERTISEMENTS ETC IN CONNECTION WITH LISTING APPLICATIONS.

Amendments made: No. 416, in page 41, line 3, leave out subsection (2).
No. 417, in page 41, line 5, leave out "Any other" and insert "A".—[Miss Melanie Johnson.]

Clause 95

MARKET ABUSE.

Mr. Flight: I beg to move amendment No. 457, in page 43, line 20, leave out
in relation to the market".

Mr. Deputy Speaker: With this it will be convenient to discuss the following amendments: No. 458, in page 43, line 23, leave out "based on" and insert "significantly influenced by".
No. 459, in page 43, line 26, leave out "relevant" and insert "material".
No. 460, in page 43, line 26, leave out
when deciding the terms on which
and insert—
in deciding whether or not to enter into".
No. 461, in page 43, line 27, after first "in", insert "qualifying".
No. 462, in page 43, line 29, leave out
supply of, or demand for
and insert "market in".
No. 463, in page 43, line 30, after first "of', insert "qualifying".
No. 464, in page 43, line 33, after first "in", insert "qualifying".
No. 465, in page 43, line 34, leave out from beginning to "that" in line 36 and insert—
The behaviour of a particular person or persons is not to be taken to amount to market abuse where".
No. 466, in page 44, line 16, after "analysis", insert
(whether or not requiring the exercise of any expertise)".
No. 467, in page 44, line 17, after first "of', insert—
or for the benefit of'.
No. 468, in page 44, line 17, after "market", insert—
or can be obtained by them on payment of a fee".
No. 469, in page 44, line 19, after "conforms", insert—
, or which is deemed to conform,".
No. 470, in page 44, line 19, after "rules", insert—
, or would so conform (or would be deemed to so conform) if the person whose behaviour is in question were an authorised person,".
No. 471, in clause 97, page 45, line 18, leave out subsection (2).
No. 474, in clause 99, page 45, line 30, after "98", insert—
and the exercise of its powers under section 104".
No. 475, in page 45, line 31, after "section", insert—
and the extent to which any penalties already imposed by the court under section 104 will be taken into account in determining any subsequent penalty imposed by the Authority in relation to the same market abuse".
No. 473, in page 45, line 33, after "must", insert—
adhere to the principle of proportionality and must".
No. 472, in page 45, line 37, leave out "or reckless".
Government amendments Nos. 118 to 120.
No. 476, in clause 104, page 47, line 30, at end insert—
(2A) In exercising its power under subsection (2) the court must have regard to any statement of policy issued under section 99.
(2B) In imposing any penalty under this section the court must have regard to any penalty already imposed by the Authority, in relation to the same market abuse.".
No. 9, in clause 344, page 177, line 19, after "effect", insert—
and the extent to which the market abuse was deliberate or reckless".
No. 10, in clause 345, page 178, line 27, at end insert—
(d) in a case within paragraph (b) of subsection (2), to the extent to which the market abuse was deliberate or reckless.".

Mr. Flight: As the House will be aware, provisions on market abuse are one of the most important technical parts of the measure. It is crucial for Britain's international competitiveness as well as for human justice that this aspect be correct, and that there should be clarity and fairness.
The Minister may be aware that almost all our amendments arise from discussions with the Law Society; I shall address the more important of them. I was pleased that the Minister welcomed the Law Society's proposals on another aspect of the measure, so I trust that the Government will also welcome them in this difficult part of the Bill.
The Government may be aware that there is considerable controversy over the recent Bertrand Fleurose case, which came before the Securities and Futures Authority. The legal position appeared to be that the tribunal needed to judge the matter according to the rules rather than according to concepts of fairness or human rights; nor could it proceed as though the Human Rights Act 1998 were already in force.
Although, in some ways, market abuse cases have been protected against claims that they might infringe the concept of human rights, it is still important that any market abuse proceedings are not technically problematic and that they are seen to be absolutely fair.
I wish to discuss the key amendments in this rather large group. Amendment No. 459 would change the word "relevant" to "material" in relation to the information on market abuse. "Relevant" seems to us and to the Law Society a considerably vague and wide term. "Material" is a more precise concept.
6.30 pm
Amendment No. 460 would change the words
when deciding on the terms on which
to the phrase
in deciding whether or not to enter into".
That would revive the wording that was in the Bill before its Committee stage. The relevant information needs to be causative, as it was in the Bill's original drafting. If the Government's intention was to narrow the offence by changing the wording, they have not achieved their aim.
Amendment No. 462 would amend the wording in relation to creating a false market so that it reflects the criminal offence of market manipulation. It is appropriate that the FSA and the criminal codes should reflect each other.
Amendment No. 465 is particularly important. It is designed to provide a clear safe harbour when an individual believes that he did not commit an offence and had taken care to avoid committing an offence. The current drafting of clause 95 will leave the FSA the discretion to take such matters into account, but it does not make it clear whether it will provide fair safe harbour.
Amendment No. 469 would add the concept of a firm being deemed to conform to FSA rules. In certain circumstances, the FSA would be empowered to treat a firm as conforming when it has conformed to certain other relevant rules.
Amendments Nos. 473 and 475 are about penalties. Amendment No. 473 would require the FSA's policy on penalties to adhere to the principle of proportionality; and amendment No 475 would prescribe that, if a penalty had already been imposed by a court, that should be taken into account in any subsequent FSA penalty for market abuse.
Amendments Nos. 9 and 10 relate to restitution orders by both the court and the FSA. They would prescribe that the court and the FSA should take account of whether the market abuse committed was deliberate or reckless.
Finally, have the Government completed their amendment of the clauses on market abuse? Given that the Law Society's comments appeared late, do they intend to reflect on them before the Bill goes into Committee in the other place?

Mr. David Ruffley: I support the amendments because I have spoken to a few people in the City of London with whom I worked in a previous career. They are solicitors and have some concern. I acknowledge, however, the sensible changes that Ministers made in Committee. Anyone who has read those debates in the Official Report cannot fail to have anything but a great deal of affection for them—they did their very best to listen when they tried to recast clause 95 and the related clauses on market abuse.
As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) made clear, they are exceedingly important clauses. They are important because they send a strong message to those who wish to trade in this country, to operate in the City of London or to consume financial services provided by the square mile. Those who engage in the market want to see fairness and transparency. If the clauses cannot provide that, our international competitiveness will suffer and business will move elsewhere.
The amendments and the clauses show the clear importance for professional bodies of the definition of "intent" and whether the provisions on the intent to commit abusive behaviour are sufficiently tightly drawn. These powerful amendments would entrench more clearly in the Bill the requirement that intent must be shown before an offence of abusive behaviour is committed. They do not relate just to the intent of market participants but deal also with the question of whether the clauses protect non-market participants. The power of the FSA to impose market abuse penalties other than on participants in the market should be limited to cases in which abusive behaviour was not reckless but intended.
I wish to refer to a powerful comment that was made by Lord Hobhouse who, in an evidence-giving session, expressed concern about these clauses and the provisions on market abuse. He said:
All those things when one adds them together add up to a scheme for punishing people who may be abroad, who may not be taking any active part in any market in this country, who have not done anything illegal, whose conduct is innocent, who are under no duty to act where they are accused of failing to act, and nevertheless punishing them for such conduct.
The amendments seek, in a modest way, to address some of those fears.
With amendment No. 457, we need to flush out how precisely the Economic Secretary believes that clause 95(1)(c) will catch off-market transactions. For example, will she tell us whether a commodity producer who trades not on the UK markets but on his home market could be caught by a provision for a worldwide squeeze on abuse? Could he be caught by the clause? If he could, what legal advice have Ministers received about the enforcement of the clause under private international law and on the conflict of laws?
The second example of a UK-based person is someone who has never traded on any of the markets specified in the Treasury order, but who indulges in one or more off-exchange transactions. Will he be caught by the clause? I understand from the Minister's remarks in Committee, as recorded in Hansard, that there is an intention that such off-market participants should be caught. I have cited two examples, but there are many others. Will the Minister give an undertaking that the code of market conduct will set out in detail categories of off-market participants who will or will not be caught by clause 95(1)(c)?
Amendment No. 458 is important because it concerns the definition of abusive behaviour and the link between actions that would constitute abusive behaviour, which seem remarkably weak and woolly. The words "based on" are too wide and introduce too much uncertainty; we therefore suggest replacing them with "significantly influenced by". The chain of causation would then be better defined and the ambit of the clause would not be too wide.
On amendment No. 460, I can only endorse the remarks of my Front-Bench colleague, my hon. Friend the Member for Arundel and South Downs. The provisions dealing with safe harbours are very important. Ministers think that clause 95(3) provides a safe harbour, and they are apprised of the need for a clear safe harbour defence. Failure to include that defence will, for the reasons that I gave earlier, greatly damage the City and market participants.
The difficulty in defining abusive behaviour arises with the phrase "regard must be had" because it gives the FSA wide discretion subjectively to decide what constitutes abusive behaviour. The language should be tightened, and amendment No. 465 would make the clause read:
The behaviour by a particular person or persons is not to be taken to amount to market abuse where
that person or those persons—the clause gives examples—
took care to avoid engaging in market abuse; or … believed that the behaviour in question would not amount to market abuse.
That would clearly give comfort to innocent market participants. My hon. Friend gave the example of a vicar's wife in Somerset.
The amendment is important because it would require the FSA to consider the conditions in subsection 3(a) and (b); only those conditions should be considered in defining abusive behaviour. The amendment should not be objectionable to Ministers, because it pins down a precise definition.
The remaining amendments in the group would tighten the Bill, provide more certainty and ensure that innocent participants were not inadvertently caught. Amendment No. 467 would make the clause refer to information provided "for the benefit of" users of a market. Equally, the reference to payment of a fee in amendment No. 468 would make it clear to whom the clause refers. That is helpful and should not be objectionable to Ministers. If they seek to oppose those amendments, particularly amendment No. 468, I will want to know why, as will players in the City, in a spirit of honest inquiry.
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I turn now to amendments No. 472 and 473. Why have Ministers included a reference to "reckless" behaviour in clause 99? Amendment No. 472 seeks to address that point, but I am not entirely clear why the term "reckless" has been introduced in that clause. It jars, and amendment No. 473, which would introduce the idea of proportionality, is particularly important.
My hon. Friend drew attention to the importance of amendment No. 475, which would ensure that if fines were imposed by a court, they would not be disregarded by the FSA when it was calculating levels of damages in exercising its jurisdiction.
For those reasons, I wholeheartedly support all the amendments in the names of my colleagues. I do so for only one reason: to ensure more certainty for market participants and the professionals in the City who do so much to make the square mile the top international financial services centre in the world.

Miss Melanie Johnson: I shall try to run through the amendments in a sensible order and at appropriate points deal with the remarks that hon. Members have made. However, they have jumped around the order of the amendments slightly, so my comments may not exactly reflect the pattern of their speeches.
I shall deal first with amendment No. 474. Clause 99 requires the FSA to prepare a policy statement with respect to the penalties that it may impose for market abuse. The amendment would require the statement also to cover circumstances in which the FSA might ask the court, under the provisions of clause 104, to impose a penalty for market abuse on a particular individual. The amendment is unnecessary. We expect the FSA to be transparent about its policies and to consult. Indeed, clause 7 requires it to maintain effective arrangements for consulting on the extent to which its general policies and practices are consistent with its general duties.
There are some areas where, in addition, the Bill expressly requires the FSA to produce a policy statement. One of those areas is the FSA's own powers to impose penalties for market abuse. Legitimate concerns have been expressed about how the FSA will exercise its powers to impose the penalties, and the consultation draft of the Bill required the publication of a policy statement. The clause has subsequently been improved in line with the suggestions of the Burns committee to specify key factors to which the FSA should have regard.
Such concerns do not arise on the FSA's policy on what to bring before the courts. Although that will, of course, be informed by its policy on the imposition of penalties under its own powers, clearly we must draw the line on policy statements somewhere. More important will be the court's determination of the penalties imposed which, by definition, will not be a matter of FSA policy.
Amendment No. 475 would amend clause 99 to provide that the FSA's policy statement must take into account the extent to which penalties already imposed by the court should be considered in determining any subsequent penalty that it might impose in relation to the same market abuse. Clearly, the FSA must take that issue into account when it arises, not least because, as the hon. Member for Bury St. Edmunds (Mr. Ruffley) acknowledged, it would be unjust to impose two penalties relating to the same set of circumstances. However, I do not see how the FSA can set out in advance the "extent" to which it would take account of any penalties previously imposed, as that would always depend on the circumstances of individual cases, including the amount of the penalty imposed.
It is important to remember that the tribunal would have something to say if the FSA imposed penalties that were disproportionate in themselves or when considered together with penalties imposed by others. I therefore do not see what the amendment adds to the Bill. Although I understand the intention behind the amendment, I ask that it be withdrawn.
Amendment No. 473 would require the FSA to adhere to the principle of proportionality in its policy on the amount of penalties that it will impose for market abuse. I have no quarrel with the sentiment—indeed, I agree with it—but the amendment is unnecessary.
The FSA is already required to take account of the principle of proportionality. Clause 2 includes such a principle, and makes it clear that that applies to the discharge of the FSA's general functions. It goes on to provide that those functions include determining the policy and principles by reference to which it performs particular functions, which will of course include its policy in relation to penalties for market abuse. I hope that the hon. Gentleman will agree to withdraw the amendment.
Clause 99 provides that the FSA's policy in respect of the amount of any penalty that it may impose for market abuse must take account of the extent to which the behaviour being penalised was deliberate or reckless. Amendment No. 472 would omit the requirement to take account of recklessness.
Hon. Members will recall that clause 95, which defines market abuse, contains no reference to the intention of the person concerned. That was mentioned by the hon. Member for Bury St. Edmunds and others this evening. The reason is straightforward: unintentional abuse can be just as damaging to markets or third parties as abuse that is deliberate or reckless, so the onus is placed on those who choose to participate in markets to make sure that they do not cross the boundary from acceptable behaviour to market abuse.
It is also right that once the fact of abuse has been proven, the state of mind of the person concerned should be taken into account in imposing any penalty. The fact

that a person had deliberately engaged in abuse must be relevant in considering the size of any penalty to be imposed, and the same principle applies if the behaviour was reckless. I hope that I have persuaded hon. Members not to press the amendment.

Mr. Ruffley: Is it the hon. Lady's understanding that "reckless" will be defined as it is defined by the criminal courts and criminal case law?

Miss Johnson: Many of the terms in the Bill, as with any law, will be interpreted by the courts.
Amendment No. 476 would require the court, in imposing any penalty for market abuse under clause 104, to take account, first, of any statement of policy that the FSA has issued under section 99, and, secondly, of any penalty that the FSA has already imposed in respect of the same market abuse.
On the first part of the amendment, it would be wrong to impose a legal obligation on the courts to take into account a policy statement prepared by and intended to guide another body—the FSA. However, there may well be occasions when the policy statement is relevant to the issue to be decided by the court, and there is nothing to prevent the person concerned from arguing that before the court. The court will decide the extent to which a policy statement is relevant.
On the second part of the amendment, it should be pointed out that the court can impose a penalty under clause 104 only if the FSA has requested it do so. That is unlikely if the FSA had already imposed a penalty. If that unlikely situation ever materialised, the court could take it into account in deciding whether to impose a penalty, so there is no need for a statutory requirement.
Many of the remarks of the hon. Member for Bury St. Edmunds related to amendment No. 457. Clause 95(1)(c) provides that behaviour can be market abuse only if a person fails to live up to the standards expected by a regular user of the market from someone in his position in relation to the market. The qualification
in relation to the market
is important. By removing it, amendment No. 457 would reduce the clarity of the provision and the protections available for market users.
The new test, which we introduced in Committee, is aimed at filtering out behaviour that may come within the definitions of behaviour in clause 95(2), but which is not abusive because, in the circumstances, it was not a failure to meet standards that the market would reasonably expect of the person in question.
One of those circumstances is clearly the position of the person in relation to the market—for example, whether he is an experienced investor in that market who can be assumed to know the effect of a particular action, or whether he owes duties to the market, possibly as the director of a listed company. Does he deal regularly on the market and can he be expected to know the market rules in detail? Such considerations will influence the view of the regular user in deciding whether the test is met.
Perhaps an example would help. Suppose a person in an overseas country does something in accordance with rules or customs in that country which, nevertheless, affects the relevant market in the UK—for example, by


giving a misleading impression. Has he engaged in market abuse? His position in relation to the market is clearly important in determining whether abuse took place. If he was acting in accordance with customs and rules overseas and had no relationship with the UK market, it seems unlikely that his action would be considered abuse.
A similar case was raised by the hon. Gentleman. It would be difficult to determine whether the commodity trader whom he mentioned had a relationship to the market. I hope that my examples make it clear why I do not consider his arguments in support of the amendment compelling.
Amendment No. 458 would increase the hurdle for proving that misuse of information unavailable to the rest of the market was abusive. That would not be a helpful change. The current test is that the behaviour has to be based on information not generally available, but which a regular market user would consider relevant in deciding the terms on which transactions should be effected.
The phrase "based on" is a high test already. The words "significantly influenced by" would make the test too stringent. If I have privileged information that a company is about to announce far greater than expected profits, is my decision to purchase the shares "significantly influenced" by the privileged information? It would certainly be possible to mount an argument that it was not, and that I thought that the company was a good bet anyway. It would be hard to prove otherwise.
We discussed similar cases in Committee. The amendment could significantly weaken the market abuse regime. That is not to say that "based on" is a low threshold; it is not. It means that the behaviour has to be based on information.
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Let us consider amendment No. 459. It is sometimes difficult to know when to raise some issues. I shall begin by commenting on the remarks of the hon. Member for Bury St. Edmunds about Lord Hobhouse and the code of conduct. The hon. Gentleman quoted a section of Lord Hobhouse's remarks, which were also quoted by the right hon. Member for Wells (Mr. Heathcoat-Amory) in Committee. I shall not quote them again, because they will already be on the record. As my hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard) said in response to the debate in Committee, the Burns committee had two anxieties about the original drafting of clause 95. We are not considering the original clause on Report. The Burns committee believed that the drafting contained a danger. Its first anxiety was about the European convention on human rights. The revised clause tackles that. The hon. Member for Bury St. Edmunds said that we should consider further anxieties about it.
The hon. Gentleman also referred to market participants. We considered whether it was possible to define market participants in clause 95(1)(c). As I said in Committee, we discussed that not only with the FSA but with the practitioner group, and a group of exchange representatives, which was established to review the code. It became clear that such an approach would not be fruitful. We want to deter many types of abusive behaviour, and it would not make sense to try to limit the provision's scope by including definitions in subsection (1)(c). They would not be meaningful or practical.
Amendment No. 460 would reverse a change that we made in Committee. We made the change to focus on the terms of the transaction, not the decision about whether to enter into the transactions. Amendment No. 461 would make consequent drafting changes. I do not want to address them, except in relation to amendment No. 462, which would replace
supply of, or demand for
with "market in". I am not sure what we would gain from that change. Despite the attempts of the hon. Member for Bury St. Edmunds to explain it, I did not understand how the amendment would help.
I shall comment on the later amendments. If hon. Members want to revert to the earlier amendments, I shall be happy to deal with their points. Several hon. Members spoke to amendment No. 471. Clause 96 requires the FSA to produce a code of market conduct. Clause 97(1) provides that when the code states that behaviour is not market abuse, a person who engages in that behaviour is not engaging in market abuse. The clauses therefore provides a complete defence and the safe harbour that hon. Members seek.
Clause 97(2) provides that, in other circumstances, when people do not comply with the code, or their behaviour is not covered by it, the code
may be relied on so far as it indicates whether or not that behaviour
is abusive. That applies only when the code is in force. It would be wrong to be able to apply it retrospectively.
In Committee, we discussed the highway code and the offence of driving without due care and attention. Like the highway code, the FSA code will carry evidential weight. That will provide for greater certainty in the regime, which will help the regulator and market users. I am surprised that Conservative Members want to remove it. If it did not exist, the FSA could give less weight to the code. That is not a desirable consequence.
I come now to the amendments to clauses 344 and 345. Clause 344 grants the court the powers to order, on the FSA' s application, that a person who has engaged in market abuse and made a profit or caused others to make a loss should make a restitution. The amendments would change the clauses so that, in assessing the amount of restitution, the court or the FSA should have regard not only to the level of the profits or losses but
the extent to which the market abuse was deliberate or reckless".
I cannot accept that. In formulating our policy on market abuse, we made it clear that it should cover not only deliberately or recklessly abusive behaviour, but negligent behaviour. There is a good reason for that. The damaging effects of abuse depend not on the state of the perpetrator's mind, but on the impact on markets and consumers.
As I said earlier, we do not claim that intention or recklessness are irrelevant, but there are degrees of culpability. The fact that someone may have deliberately or recklessly engaged in abuse is relevant. Clause 99 deals with the penalties that can be imposed for abuse, and requires the FSA to take those factors into account in formulating its policy on the amount of the penalty.
Restitution is different. A restitution order is intended to restore any loss that might have been incurred by others as a result of the abuser's action. The position is the same as that for breaches of FSA rules that lead to a loss for


consumers. Failure to observe a rule, which results in a loss to consumers, might not be due to the recklessness of an authorised firm. However, it would be wrong if consumers could not get their money back in such circumstances. That is a fundamental principle of restitution.
The hon. Member for Arundel and South Downs (Mr. Flight) asked a general question about whether the Government had completed their amendments on market abuse, or whether more would be tabled in another place. We have no plans to table further amendments, but I cannot put my hand on my heart and swear that no more will be tabled, because we are considering a highly technical subject.

Mr. Cousins: I have followed my hon. Friend's arguments as closely as I can, and I have been impressed not only by her clarity and moderation but by her robustness on behalf of consumer interests. She has taken a reasonably clear position with regard to another place. I want to reinforce her determination to ensure that her stand on behalf of consumers will be defended not only in the Chamber but in another place. I strongly endorse her position.

Miss Johnson: I thank my hon. Friend for his understanding and support for our position and the modifications that we have made. I believe, as does my hon. Friend, that we have moved far enough to ensure that we are proposing a regime that will operate fairly on behalf of those who may fall into a category of committing market abuse. We have defined that properly and rightly. Any further amendments would be made only as a result of technical changes, not changes in the Government's position. We have got the balance right.

Mr. Heathcoat-Amory: The House will be pleased to know that I shall not grind through the case for our amendments again, as it was ably put by my hon. Friends the Members for Arundel and South Downs (Mr. Flight) and for Bury St. Edmunds (Mr. Ruffley). They set out the arguments for a modest package that is largely in line with the requirements of the Law Society. Those arguments should be taken seriously by the Government as these provisions are most important, if only because they could affect everybody, not only the regulated community. Many of the other disciplinary powers relate to comparatively few professionals who form only a small proportion of the population even though they number many thousands, but market abuse could be committed by anyone who engaged in market activity and these measures could catch unintentionally people who have only an association with a market.
The Government have tried to limit the provisions and I again concede that the proposal before us is much better than the one they started with, but further certainty is required. It is a basic requirement of justice that people should know in advance what behaviour is likely to be caught by a Bill and whether they would be subject to either the criminal law or civil law sanctions. That was at the root of many of the objections made by witnesses to the Burns committee. My hon. Friend the Member for Bury St. Edmunds quoted Lord Hobhouse and, although

the Minister came back to describe how the Bill had been altered since, many of the misgivings expressed last year are still valid.
Our amendment would import greater clarity and certainty to the Bill. As the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) said, the protection of consumers is a perfectly valid objective for the market abuse provisions—indeed, that is one of the Bill's main aims—but the consumer interest will not be well protected if they are unworkable in any respect. If they fall foul of the courts or, worse, are tripped up by an adverse ruling at the European Court of Human Rights, the whole industry will suffer through lack of effective regulation. The consumer interest could also be jeopardised so it is important that the modifications are adequate.
The Government have introduced provision for subsidised legal assistance when people are accused of such crimes and misdemeanours. It is important to recognise that those matters have aspects of the criminal law about them and that the defence that must be available must therefore measure up to criminal standards. That cannot be regarded as simply a matter for the civil law.
I was slightly worried by the Minister's comments on the code of conduct. It is an important indicator of what might or might not be market abusive, but no substitute for clarity and certainty in the primary legislation. As I have said before, people will go to the primary legislation to find out where they stand in relation to the authority and the law and referring them to a voluminous code of conduct as a safe or partially safe harbour—if they have time to read it—will not entirely meet requirements.
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I was also a little worried by the Minister's comments on the fact that unintended abuse would still be caught. I understand what lies behind them, but it is dangerous to propose that we should rely entirely on the effect of an action and disregard the intention. She explained that the degree of intention in the market abuse would have to be taken into account in settling penalties, but I cannot help drawing the House's attention to the contrast between the treatment of people accused of market abuse and the protection given to the FSA when it engages in wrong behaviour unintentionally.
The Government have been careful to ensure that the authority is not liable for unintended wrong behaviour when, for example, it acts negligently or even recklessly. They have erected a series of protections for the authority that are not available to the public or those accused of market abuse and that asymmetry—this is not the only example of it—causes some disquiet.

Mr. Nigel Beard: Proof of intent has been debated several times and is being covered again now. Several cases of market abuse were notable because they were difficult to prove and people got away with it. Would not it be extremely difficult to prove market abuse if intent were introduced as the basis of proof and would not an awful lot of people still get away with it? The Bill eases the process of prosecution so that those who should be prosecuted and found guilty will be found guilty.

Mr. Heathcoat-Amory: The hon. Gentleman makes the big claim that guilty people have got away with it.
I am not sure that I necessarily agree with that, but I agree that we want the regulations to be effective. The villains, crooks and thieves have to be brought to book and rigging a market is a form of fraud or theft, but my point that the proposal could be counter-productive unless the Government get it right remains valid. People could get away with genuine market rigging and market abuse because the Government have not listened to outside legal interests that are genuinely trying to improve the Bill. The Law Society falls into that category. It is certainly not on the side of the crooks; it is a comparatively disinterested trade body, if I may describe it as such, that is trying to make the Bill more effective.

Liz Blackman: How else can market abuse be evidenced, other than in its effect?

Mr. Heathcoat-Amory: I shall not go through the case for our amendments again, but I refer the hon. Lady to the arguments of my hon. Friend the Member for Arundel and South Downs, who proposed a modest amendment to tighten the provisions and to place greater emphasis on the concept of intent. If we do not do so, we could violate a fundamental principle of justice. Although I recognise the force of the Minister's arguments, I am nevertheless disturbed at the extent to which they are beginning to rely more on the effect of behaviour rather than intent in defining market abuse. Our amendment, which would not have completely removed the concept of unintended abuse, would have achieved an improvement.
The Law Society has advanced those concerns, and suggestions for dealing with them. We do not intend to press any of these amendments to a Division at present. In her response, the Economic Secretary left the door very slightly ajar, so there may be an opportunity to return to these matters in the other place to get a regime to conquer market abuse that is effective without doing too much damage to the traditional principles of British justice.

Mr. Flight: In the light of my right hon. Friend's comments, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Clause 96

THE CODE

Amendments made: No. 285, in page 45, line 1, leave out subsection (5) and insert—
(5) If the code is altered or replaced, the altered or replacement code must be issued by the Authority.
(5A) A code issued under this section must be published by the Authority in the way appearing to the Authority to be best calculated to bring it to the attention to the public.".
No. 286, in page 45, line 5, leave out subsections (6) to (8).
No. 287, in page 45, line 13, at end insert—
( ) The Authority may charge a reasonable fee for providing a person with a copy of the code.".—[Miss Melanie Johnson.]

Clause 99

STATEMENT OF POLICY

Amendments made: No. 288, in page 45, line 28, leave out "publish" and insert "issue".
No. 289, in page 45, line 40, leave out
any statement of policy for the time being published
and insert "a statement issued".
No. 290, in page 46, line 1, leave out
any statement of policy for the time being published
and insert "a statement issued".
No. 291, in page 46, line 2, leave out "publish" and insert "issue".
No. 292, in page 46, line 6, leave out "of policy".
No. 293, in page 46, line 6, after "section" insert "and in force".
No. 294, in page 46, line 8, leave out subsection (6) and insert—
( ) A statement issued under this section must be published by the Authority in the way appearing to the Authority to be best calculated to bring it to the attention to the public.".
No. 295, in page 46, line 11, at end insert—
( ) The Authority may charge a reasonable fee for providing a person with a copy of a statement published under this section.".
No. 296, in page 46, line 12, leave out subsection (7).
No. 297, in page 46, line 16, leave out "of policy".—[Miss Melanie Johnson.]

Clause 103

SUSPENSION OF INVESTIGATIONS

Amendments made: No. 118, in page 47, line 6, leave out from "of' to "it" in line 7 and insert—
a power relating to market abuse".
No. 119, in page 47, line 19, leave out from "powers" to "are" and insert "relating to market abuse".
No. 120, in page 47, line 22, leave out "impose penalties" and insert—
appoint a person to conduct an investigation".—[Miss Melanie Johnson.]

Clause 116

ENDORSEMENT OF CODES ETC. ISSUED BY OTHER BODIES

Amendments made: No. 298, in page 53, line 14, leave out subsections (6) to (11).
No. 299, in page 53, line 29, leave out
(7), (8)(b), (9) and (11) apply
and insert
(1), (2)(d), (4), (5), (6)(a) and (10) of section 127 apply (with the necessary modifications)".—[Miss Melanie Johnson.]

Clause 125

RULE-MAKING INSTRUMENTS

Amendment made: No. 300, in page 57, line 14, leave out from beginning to "the" in line 15 and insert—
(4) A rule-making instrument must be published by the Authority in the way appearing to the Authority to be best calculated to bring it to the attention or.—[Miss Melanie Johnson.]

Clause 127

CONSULTATION

Amendments made: No. 301, in page 58, line 2, leave out from "analysis" to end of line 3.
No. 302, in page 58, line 5, leave out "a statement" and insert "an explanation".
No. 303, in page 58, line 8, leave out "a statement" and insert "notice".
No. 304, in page 58, line 10, leave out from beginning to second "the" and insert—
In the case of a proposal to make rules under a provision mentioned in subsection (8A),".
No. 305, in page 58, line 12, leave out "those proposals are" and insert "the proposal is".
No. 306, in page 58, line 15, leave out from first "the" to "to" in line 17 and insert—
Authority makes the proposed rules, it must publish an account, in general terms, of—

(a) the representations made to it in accordance with subsection (2)(d); and
(b) its response.".

No. 307, in page 58, line 18, leave out
rules made by the Authority
and insert "the rules".
No. 308, in page 58, line 21, leave out "publish a statement" and insert—
(in addition to complying with subsection (5)) publish details".
No. 309, in page 58, line 22, leave out "the statement" and insert "those details".
No. 310, in page 58, line 22, leave out from "analysis" to end of line 23.
No. 311, in page 58, line 24, leave out "(3) and".
No. 312, in page 58, line 27, leave out from beginning to "of in line 33 and insert—
( ) Neither subsection (2)(a) nor subsection (6)(b) applies if the Authority considers—

(a) that, making the appropriate comparison, there will be no increase in costs; or
(b) that, making that comparison, there will be an increase in costs but the increase will be".

No. 313, in page 58, line 34, at end insert—
(8A) Neither subsection (2)(a) nor subsection (6)(b) requires a cost benefit analysis to be carried out in relation to rules made under—

(a) section (Funding of the legal assistance scheme)(2);
(b) subsection (1) of section 187 as a result of subsection (4) of that section;
c) section 209;
(d) paragraph 17 of Schedule 1.".


No. 314, in page 58, line 38, after "rules", insert "that have been made".
No. 315, in page 58, line 38, at end insert—
(11) 'The appropriate comparison' means—

(a) in relation to subsection (2)(a), a comparison between the overall position if the rules are made and the overall position if they are not made;
(b) in relation to subsection (6)(b), a comparison between the overall position after the making of the rules and the overall position before they were made.".—[Miss Melanie Johnson.]

Clause 129

GUIDANCE

Amendment made: No. 418, in page 59, line 7, leave out "under this Act".—[Miss Melanie Johnson.]

Clause 130

NOTIFICATION OF GUIDANCE TO TREASURY

Amendment made: No. 419, in page 59, line 34, leave out "Notice of an alteration" and insert "The notice".—[Miss Melanie Johnson.]

Clause 131

INTERPRETATION

Amendment made: No. 316, in page 60, line 21, leave out
the Treasury and the Director may assume
and insert "it may be assumed".—[Miss Melanie Johnson.]

Clause 132

POWERS AND DUTIES OF THE TREASURY

Amendment made: No. 317, in page 60, line 24, leave out Clause 132.—[Miss Melanie Johnson.]

Clause 133

POWER OF THE DIRECTOR TO REQUEST INFORMATION

Amendment made: No. 447, in page 61, line 13, leave out "132" and insert
(Reports by Director General of Fair Trading)".—[Miss Melanie Johnson.]

Clause 134

THE COMPETITION ACT 1998

Amendments made: No. 318, in page 61, line 40, leave out Clause 134.
No. 319, in page 62, line 27, leave out Clause 135.—[Miss Melanie Johnson.]

Clause 137

AUTHORITY'S POWER TO REQUIRE INFORMATION

Amendment made: No. 448, in page 64, line 15, at end insert—
( ) an operator, trustee or depositary of a scheme recognised under section 243 or 245 who is not an authorised person;".—[Miss Melanie Johnson.]

Clause 150

OBLIGATION TO NOTIFY THE AUTHORITY

Amendment made: No. 121, in page 74, line 31, leave out
does not qualify for authorisation under
and insert
is not a person authorised as a result of paragraph 1 of'.—[Miss Melanie Johnson.]

Clause 157

CONDITIONS ATTACHED TO APPROVAL

Amendment made: No. 122, in page 77, line 31, leave out subsection (2) and insert—
(2) In imposing any conditions, the Authority must have regard to its duty under section (The threshold conditions).".—[Miss Melanie Johnson.]

Clause 158

OBJECTION TO ACQUISITION OF CONTROL

Amendments made: No. 123, in page 78, line 12, at end insert "and".
No. 124, in page 78, line 16, leave out from "control" to end of line 24 and insert—
( ) In deciding whether the approval requirements are met, the Authority must have regard, in relation to the control that the acquirer—

(a) has over the authorised person concerned (`A'), or
(b) will have over A if the proposal to which the notice of control relates is carried into effect,

to its duty under section (The threshold conditions) in relation to each regulated activity carried on by A.".—[Miss Melanie Johnson.]

Clause 166

GENERAL GROUNDS ON WHICH POWERS OF INTERVENTION ARE EXERCISABLE

Amendments made: No. 125, in page 83, line 22, leave out "authorised person" and insert "firm"
No. 126, in page 83, line 23, after "such" insert "a"—[Miss Melanie Johnson.]

Clause 175

EFFECT OF CERTAIN REQUIREMENTS ON OTHER PERSONS

Amendment made: No. 127, in page 88, line 3, leave out "(1)" and insert "(1B)".—[Miss Melanie Johnson.]

Clause 177

POWER TO PROHIBIT THE CARRYING ON OF CONSUMER CREDIT ACT BUSINESS

Amendments made: No. 128, in page 88, line 14, at end insert—
(1A) If it appears to the Director that a restriction imposed under section 178 on an EEA consumer credit firm has not been complied with, he may by written notice given to the firm impose a consumer credit prohibition.".
No. 129, in page 88, line 30, at end insert "or (1A)".—[Miss Melanie Johnson.]

Clause 178

POWER TO RESTRICT THE CARRYING ON OF CONSUMER CREDIT ACT BUSINESS

Amendment made: No. 130, in page 89, line 35, leave out subsection (5).—[Miss Melanie Johnson.]

Clause 185

STATEMENTS OF POLICY

Amendments made: No. 320, in page 91, line 13, leave out "publish" and insert "issue".
No. 321, in page 91, line 24, leave out "any material published" and insert "a statement issued".
No. 322, in page 91, line 26, leave out "any such material" and insert
a statement issued under this section".
No. 323, in page 91, line 26, leave out "publish it as altered" and insert
issue the altered or replacement statement".
No. 324, in page 91, line 28, leave out subsection (5) and insert—
(5) The Authority must, without delay, give the Treasury a copy of any statement which it publishes under this section.".
No. 325, in page 91, line 30, leave out subsection (6) and insert—
(6) A statement issued under this section must be published by the Authority in the way appearing to the Authority to be best calculated to bring it to the attention of the public.".
No. 326, in page 91, line 33, leave out subsection (7).
No. 327, in page 91, line 40, leave out "material" and insert "statement".
No. 328, in page 91, line 40, after "section" insert "and in force".
No. 329, in page 91, line 41, at end insert—
( ) The Authority may charge a reasonable fee for providing a person with a copy of the statement.".—[Miss Melanie Johnson.]

Clause 189

RIGHTS OF THE SCHEME IN RELEVANT PERSON' S INSOLVENCY

Amendment made: No. 131, in page 95, line 16, leave out "65" and insert "55".—[Miss Melanie Johnson.]

Clause 195

POWERS OF COURT WHERE INFORMATION REQUIRED

Amendments made: No. 132, in page 99, line 3, leave out "punish" and insert "deal with".
No. 133, in page 99, line 4, leave out from "he" to end of line and insert "were in contempt".—[Miss Melanie Johnson.]

Clause 197

MANAGEMENT EXPENSES

Amendment made: No. 134, in page 99, line 30, leave out ", (3)".—[Miss Melanie Johnson.]

Clause 198

COMPULSORY JURISDICTION

Amendment made: No. 135, in page 99, line 31, leave out Clause 198.—[Miss Melanie Johnson.]

Clause 203

DETERMINATION UNDER THE COMPULSORY JURISDICTION

Mr. Flight: I beg to move amendment No. 237, in page 103, line 18, leave out subsections (4) to (7) and insert—
(4) The ombudsman's determination shall be binding on the respondent and the complainant and shall be final.
(5) The ombudsman's statement must:

(a) give the ombudsman's reasons for his determination; and
(b) be signed by him.".

Mr. Deputy Speaker (Mr. Michael J. Martin): With this it will be convenient to discuss Government amendments Nos. 180 and 181.

Mr. Flight: The new FSA ombudsman scheme brings together the various existing ombudsman schemes, but has been led by the insurance side. When we dealt with this issue in Committee, it struck Conservative Members as quite wrong that there were different obligations on those appealing to the ombudsman and those whose conduct was being considered by him: either both or neither should be bound by the ombudsman's decision.
I spoke to the new head of the ombudsman scheme to sound him out about why that was the case. The gist of his response was that, when the ombudsman had been established in the insurance industry—which was his background—it was a way for insurance companies to slough off dealing with complaints and to get some good PR from setting up an independent body. It was rare for individuals to go to court, even if the ombudsman found against them, because they could not afford to do so. It looked good to be able to say that an individual complaint to an ombudsman could go on to court proceedings, even if the ombudsman had found against the complainant.
That is not a very good argument for the asymmetry that has now been fed into the entire ombudsman scheme. It is possible that the European convention on human rights would give rise to proceedings in the courts if the scheme remained asymmetrical. There is an argument for the two possibilities—either both parties should be bound by the ombudsman's decision, which seems to me the more sensible, or neither side should be bound. By inheriting this anomaly, which arose for the reasons that I have described, the ombudsman scheme is open to attack under the European convention on human rights. It is also wrong in principle.
I want to raise another, indirectly related issue. Under present arrangements, which I understand will continue, if a case against a financial adviser is brought to the ombudsman and he finds the financial adviser innocent of any wrongdoing, the adviser still has to pay a charge, as he sees it, or an administrative cost, as the ombudsman describes it, of £500. There is an understandable widespread feeling of unfairness.
Independent financial advisers are often not very large businesses, and £500 for being found innocent is perceived as an unjust method of gaining justice. I understand that there are proposals to waive that charge in future if complaints to the ombudsman are viewed as vexatious, but to my mind the whole basis should be further examined, because it is wrong for people to be fined when they are innocent, which is how the arrangements operate in practice.
The key point in our amendment is that there should be symmetry one way or t'other, so that we know whether the complainant and the party complained about are both bound by the ombudsman's decision.

Mr. Andrew Tyrie: We had a good canter around this issue in Committee, so I shall not rehearse all the arguments again, which will please everyone, including me. The Bill creates a leviathan ombudsman scheme—I should think that it will be the biggest ombudsman scheme that there has ever been anywhere, certainly that I know of—and there is a risk of a growing bureaucracy associated with it.
It is important to put this in the context of other UK ombudsman schemes. The parliamentary ombudsman scheme has become a bit of a bureaucracy. It is taking, on average, two years to investigate cases and costs are rising. We do not want this ombudsman scheme to go that way, but I am concerned that we may move down that road. At the moment, the existing schemes are relatively flexible. Most of the eight or nine schemes that we are joining together seem to work reasonably well.
Picking up the point that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) made about the £500 charge, the flip side of that is that the ombudsman scheme is free to consumers at the point of use. Some modest charge should be made to discourage flippant approaches to the ombudsman. The way to do that is to have, like several of the existing schemes, an entry fee of, say, £50.
A second problem with the scheme that we are setting up is that the ombudsman is not accountable to anyone. Unlike the parliamentary ombudsman, who is accountable to Parliament, this ombudsman will be accountable only to the ombudsman scheme board that is being specially created for the purpose. Some form of parliamentary oversight, perhaps by the Treasury Select Committee, would be better. I regret that nothing is being done about that.
The most important consideration is the asymmetry of treatment before the law. The principle of the existing ombudsman schemes in the United Kingdom is equality of treatment under the law. The proposed scheme contains a blatant unfairness. The decision of the ombudsman is binding on the firm, but it is not binding on the individual, who may go to law and pursue the issue further. It is that unfairness, in particular, that our amendment seeks to redress.
It is not only that the scheme is unfair, it is also imprudent, because it will greatly increase the likelihood of the European Court of Human Rights having oversight of this whole area. That in itself will add a layer of bureaucracy, and will slow down the process of dealing with these cases.
I am supportive of an ombudsman scheme in principle, and I am extremely keen that there should be a mechanism to assist consumers' complaints. I am fairly sure that we have not got it right as the Bill is drafted. That is why I hope that the House will support our amendment.

Mr. Timms: The question whether the ombudsman's decision should be binding on the complainant as well as the respondent was considered in Standing Committee. It was also considered by the Joint Committee.
The amendment would improve the position of the firm and worsen the position of the individual. We continue to believe that the balance is right as the Bill stands. First, it is what the vast majority of firms with retail customers want. The firms themselves have said that—that is very clear from responses during our consultation process on the Bill and the provisions of the two main forerunner voluntary ombudsman schemes in this area, which cover banking and insurance. The Personal Investment Authority, which is the main retail self-regulating organisation, has also chosen to adopt this model for its scheme, so the precedents are clear.

Mr. Tyrie: Those are voluntary schemes; that is the crucial point. The Bill is not a voluntary scheme, it is a compulsory scheme. If we volunteer to go through a process which we think will benefit us, through a scheme which has asymmetry in treatment before the law, that is one thing; if we are "volunteered" into a scheme about which we have no choice and which leaves us without access to the courts, that is quite another thing.

Mr. Timms: The existing schemes have very wide support in the industry. They provide a good model for how the new scheme should work. It is true that we are proposing a compulsory scheme, but I do not agree that it would be right to tilt the balance in the design of the new scheme against the individual, which is what the Opposition propose.
Secondly, as the majority of retail firms clearly recognise, it is necessary to give consumers confidence that they can refer their complaints to the scheme without losing any legal right that they may have to take a firm to court. After all, the point of this scheme is to enable consumers to bring complaints outside the expensive arena of the courts. Very few complainants, very few individuals, will have the resources to seek judicial review of an ombudsman's decision, whereas firms very often will. When important principles are at stake, they will have the technical and financial support of their trade bodies as well. So, if we made the ombudsman's determination binding on both sides, we would be recreating exactly the inequality that the ombudsman's scheme is designed to remove.
It is also important that we are not dealing here with commercial disputes between firms. To be fair, that has been clear from what Opposition Members have said. This is a retail scheme—it will limit those who are eligible to complain and the sums that may be awarded. Consultation paper 33 from the FSA proposes to set an overall limit of £100,000. Beyond that, the ombudsman will only be able to recommend that the firm should pay an additional sum.
Thirdly, there is no question of a complainant receiving a double award from the ombudsman and from the courts, even when an award goes beyond what a court could award. The provisions that the amendment would remove require the complainant to decide within a specified time whether to accept the ombudsman's award. If he accepts, the ombudsman's determination is binding on both parties. If not, he will be treated as rejecting the award.
Opposition Members have suggested that that might breach a firm's rights under the European convention or force the ombudsman to adopt an over-legalistic procedure in order to be compatible with the convention. That is not our understanding. I do not think there is a

contradiction between adopting a quick and informal process which is fair to both sides and ensuring that the parties can, if they choose, receive a fair public hearing from an independent tribunal, as required by article 6(1).

Mr. Tyrie: One of the concerns is that there could be excessive bureaucracy where the ombudsman knows that there may be an ECHR inquiry; he will therefore be all the more meticulous, which could lengthen the inquiry. Do the Government have a target that they think would be reasonable for the average duration of an ombudsman's investigation?

Mr. Timms: That would depend very much on the nature of the case and of the complaint. I do not have an anticipated average. It may well be that the ombudsman does, although I imagine that he would have in mind different periods for different kinds of complaint.
There are many other areas in which Parliament has deemed it necessary to redress the imbalance of resources that would otherwise exist between the parties to a civil dispute. For example, in a very different context, there is a comparable situation in disputes between landlord and tenant, where the requirements on the tenant and the requirements on the landlord are rather different, reflecting the different strengths of their position. Other examples are employers and employees, lenders and borrowers. In all of those cases, it is necessary to provide additional procedures that give confidence to the weaker party that he or she will have the same opportunity to present the case. That is exactly the position here as well.
The experience of other schemes is that the vast majority of complaints are settled without the need for a formal hearing. There is no evidence that firms have been or will be prejudiced by giving consumers the theoretical option of having their complaint reheard by the courts. Therefore, I hope that the whole House will accept, on reflection, that the clause is the best model both for firms and for consumers.
I should like to say a few words about the Government's amendments. Amendment No. 180 clarifies the rules governing the budget to be adopted by the ombudsman scheme operator each year. As drafted, the Bill requires only that the budget reflects income from fees. The amendment makes it clear that the budget should set out any income that the operator has from the operation of the scheme—for example, income from publications.
Amendment No. 181 makes it clear that the operator of the ombudsman scheme may include in its standard terms under the voluntary jurisdiction matters relating to the payment of fees and levies. That is consistent with the arrangements for the compulsory jurisdiction under clause 209.

Mr. Flight: We remain of the view that it would be wiser for both sides to be bound by the ombudsman. However, this is not a matter of major principle, and therefore I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Clause 237

OPEN-ENDED INVESTMENT COMPANIES

Amendment made: No. 449, in page 121, line 2, after "of insert ", or made under,".—[Mr. Timms.]

Clause 240

REPRESENTATIONS AND REFERENCES TO THE TRIBUNAL

Amendment made: No. 450, in page 122, line 36, leave out "A person" and insert—
The operator of the scheme".—[Mr. Timms.]

Clause 242

POWER OF AUTHORITY TO SUSPEND PROMOTION OF SCHEME

Amendments made: No. 451, in page 123, line 23, at end insert—
( ) If the Authority decides to revoke a direction under this section it must—

(a) give the operator of the scheme a decision notice; and
(b) inform the competent authorities in the scheme's home State of its decision.".

No. 452, in page 123, line 39, at end insert—
( ) The Authority may, either on its own initiative or on the application of the operator of the recognised scheme concerned, revoke a direction given under subsection (1A) if it appears to the Authority—

(a) that the conditions specified in the direction have been complied with; or
(b) that it is no longer necessary for the direction to take effect or continue in force.".

No. 453, in page 123, line 40, after "effect" insert "(unless revoked earlier)".—[Mr. Timms.]

Clause 252

POWER TO REQUIRE INFORMATION

Amendment made: No. 454, in page 128, line 17, leave out clause 252.—[Mr. Timms.]

Clause 260

EXEMPTION FOR RECOGNISED INVESTMENT EXCHANGES AND CLEARING HOUSES

Mr. Timms: I beg to move amendment No. 136, in page 132, line 36, leave out from beginning to "in", in line 37 and insert-
in relation to which a recognition order is".

Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government amendment No. 137.
Amendment No. 481, in clause 262, page 134, line 9, after "for", insert "access to and".
Amendment No. 482, in page 134, line 9, after "services", insert—
and the capacity of those services".
Government amendment No. 139.

Mr. Timms: Amendment No. 139 makes a drafting change to correct the mistaken indirect reference in

clause 269(6) to directions made in subsection (2). Subsection (2) in fact contains no such power. The amendment makes a further consequential change.
Amendments Nos. 136 and 137 make minor changes to improve the drafting of clause 260. They do not change the substance of the provisions of this part.
Amendments Nos. 481 and 482, in the name of my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins), would make drafting changes to the provisions on the required particulars which applicants for recognition as recognised investment exchanges must send with their application. I shall be interested to hear what he has to say about this, but I suggest that the amendments are covered already by provisions in the Bill.
Clause 288(2)(b), for example, provides that references to rules of an investment exchange, which must be submitted with the application, are to rules made with respect to
admission of persons to, or their exclusion from the use of, its facilities".
That, I think, deals with amendment No. 481 and the important point about access.
Amendment No. 482 would add a reference to
the capacity of those services".
If there is an issue, I think that it can be dealt with by the FSA asking for additional information under clause 262(3)(e)—or, if need be, in the recognition requirements described in clause 261. I think that the points raised by my hon. Friend in his amendment are dealt with by provisions already in the Bill, but I shall be interested to hear what he has to say.

Mr. Cousins: I shall not detain the House for long, but we are dealing with an important aspect of developments in the markets that have taken place since the inception of the Bill. It is important because it concerns the capacity of the London market to continue to maintain its strength and significance: it must have the technological capacity to deal with modern market situations.
The United States has 160 on-line share brokers; 40 per cent. of all share trading there takes place on line rather than directly through the markets. The situation in this country is quite different. On the London stock exchange, although 2,000 shares are listed only 130 can be traded on line, and only a limited number of brokers have on-line trading capacity.
Since the explosion in asset values last autumn, the number of trades on the market has increased incredibly rapidly. The number of trades, particularly by small traders, is now three or four times greater than it was even six months ago. People are attempting to make the most of those trades by telephone, because of the lack of on-line trading capacity. In many cases, the telephone systems handled by brokers have broken down, causing delays and causing consumers attempting to buy and sell stock to doubt whether they have been fairly treated. I have been told by the FSA that in the early part of January as many as 2 billion shares a day were being traded on the markets, and that those included an increasing number of very small trades. In that respect, the London market compares very unfavourably with the market in Frankfurt, which has a completely electronic platform.
In November and December of last year, the position of small traders in the market led to a major outcry in the press and other media about the lack of ability to place deals when people wanted to execute them. At that time, the Securities and Futures Authority, which is currently responsible for this aspect of the work of the exchanges, produced some guidance for people in the market. That guidance effectively attempted to protect the position of clients who were already registered with brokers and who had nominee accounts. Plainly, they were to be given priority to the disadvantage of other traders who were not similarly placed. That cannot be satisfactory in consumer terms.
It is not clear that the FSA regards the capacity of the market to sustain the volume of trade as part of its duty. After I submitted a dossier of correspondence on the topic to Howard Davies of the FSA, he wrote:
You can be assured that where a firm does get into difficulties which pose a significant risk to customers—whether with its telephone or internet-based services—our supervision staff can and do get involved. Persistent poor service to customers, causing losses to them, could be grounds for disciplinary action … The longer-run development of dealing services is ultimately a commercial matter for the exchanges and their users.
7.45 pm
I confess to being rather dismayed by that last point. I am worried about the fact that the FSA does not consider the maintenance of the capacity to execute deals in the markets to be clearly one of its responsibilities. I accept that, as my hon. Friend the Minister has said, provisions in the Bill allow the FSA perhaps to include that in its remit, but the Bill does not seem to specify a duty, which is one of the purposes of the amendments.
Issuing the 9 December guidance that established priorities for those with nominee accounts, Lindsay Thomas, head of the Securities and Futures Authority's supervision department, said:
It is important that firms put in place systems adequate to handle the new peak levels of business that they should now expect.
That implies that Lindsay Thomas envisages some duty for the SFA to deliver in that regard. Howard Davies's later correspondence with me appears to water that down.
I am concerned about that. We are seeing the development of new markets; we are seeing the development of new traders in the market—consumers with small stocks of equities in which they wish to deal. It is, of course, possible that some of that may not be well advised. There is concern about people who are working on the margins, buying options rather than the shares themselves. However, the concern about whether consumers are well advised to engage in such trades provides no excuse for a lack of capacity in the market.
I urge Ministers to make it clear that the FSA will have a duty and responsibility to ensure that our British share markets can function in a modern, high-tech, e-commerce way, and will no longer be subjected to the delays experienced by small traders in the last months of 1999.

Mr. Flight: Let me ask the Minister a question about investment exchanges. Under the Bill, they become semi-regulative bodies themselves and gain a legal immunity that, in the main, was not enjoyed before. What arrangements, if any, will be organised to deal with complaints about investment exchanges in relation to those

using them, and for any potential recompense when exchanges have acted improperly to members or customers?

Mr. Timms: I listened with interest to what was said by my hon. Friend the Member for Newcastle upon Tyne, Central. I share his concern: it is important for adequate facilities to be available for as many people as wish to participate in trades.
There has been a remarkable increase in recent months. That is a welcome development. The more people who take part in such trading, the better. Of course they must take adequate advice and precautions, but we want more people to participate, and that is clearly happening.
My hon. Friend is right to draw attention to the growth of on-line share brokering. He has made the point that things have gone a good deal further in the United States than they have here. That is true, but I have no doubt that there will be rapid developments on that front in the UK as well; it is happening across the board in on-line services. That sector will be no exception.
It is clear from the letter that my hon. Friend read from Howard Davies that the FSA will take a general and close interest in what is happening to ensure that arrangements are working well and that provision is adequate, but if there is demand for a particular type of service, we will want the market to respond to that demand. I do not think that it is for the Bill or the FSA to require that the market should respond. I am not quite sure what mechanism it could adopt to require that.
Therefore, the arrangements in the Bill are the right ones. They allow for both my hon. Friend's points to be dealt with through the provisions that are already in place, but I am not sure that it will be possible for the FSA to take the rather more prescriptive role that he outlined, although it will take a close interest in how things develop. In that sector, notwithstanding the difficulties with capacity that have arisen in recent months, we can expect the market to move pretty quickly and ensure that there is adequate capacity for the attractive commercial opportunities that growth is presenting.
The hon. Member for Arundel and South Downs (Mr. Flight) asked about arrangements for complaints. The Bill requires the FSA to maintain arrangements for dealing with complaints against recognised bodies; it is in clause 275. The draft recognition requirements that were published for consultation last year also require the recognised bodies to maintain complaints arrangements. Those are the provisions that have been made. I hope that that covers his point.

Amendment agreed to.
Amendment made: No. 137, in page 132, line 38, leave out from "house" to "in", in line 39 and insert—
in relation to which a recognition order is".—[Miss Melanie Johnson.]

Clause 269

MODIFICATION OR WAIVER OF RULES

Amendments made: No. 138, in page 137, line 30, at end insert—
( ) Subsections (3) to (5) apply to a direction given under subsection (1).

No. 139, in page 137, line 42, leave out subsection (6).—[Miss Melanie Johnson.]

Clause 274

DIRECTIONS AND REVOCATION: PROCEDURE

Amendment made: No. 140, in page 140, line 7, at end insert "or (4)(b)".—[Miss Melanie Johnson.]

Clause 281

FURTHER REPORTS BY DIRECTOR GENERAL OF FAIR TRADING

Amendment made: No. 141, in page 144, line 20, leave out "contained in an annual" and insert "the subject of a".—[Miss Melanie Johnson.]

Clause 283

INVESTIGATIONS BY DIRECTOR GENERAL OF FAIR TRADING

Amendments made: No. 142, in page 145, line 41, leave out "punish" and insert "deal with".
No. 143, in page 145, line 42, leave out from "he" to end of line and insert "were in contempt".—[Miss Melanie Johnson.]

Clause 288

INTERPRETATION OF PART XVII

Miss Melanie Johnson: I beg to move amendment No. 144, in page 148, line 21, leave out from "and" to end of line 23 and insert—
in relation to which a recognition order is in force".

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 145 and 154.

Miss Johnson: These are drafting amendments and follow on from the amendments to clause 260. They bring the definitions into line with those for domestic recognised investment exchanges and recognised clearing houses in clause 260.
Amendment No. 154 defines an exempt person as any person who has been granted exemption under an exemption order made under clause 34, as the appointed representative of an authorised person under clause 35, or who has been recognised as an investment exchange or a clearing house.

Amendment agreed to.
Amendment made: No. 145, in page 148, line 26, leave out from "and" to end of line 27 and insert—
in relation to which a recognition order is in force".—[Miss Melanie Johnson.]

Clause 291

DIRECTION BY AUTHORITY

Amendments made: No. 330, in page 150, line 37, leave out "("the effective date")".
No. 331, in page 150, line 38, at end insert—
( ) A direction under subsection (1) must be published in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
( ) The Authority may charge a reasonable fee for providing a person with a copy of the direction.
( ) The Authority must, without delay, give the Treasury a copy of any direction which it gives under this section.".—[Miss Melanie Johnson.]

Clause 293

EXERCISE OF POWERS THROUGH COUNCIL

Amendment made: No. 332, in page 151, line 20, at end insert—
( ) A direction under subsection (1) must be published in the way appearing to the Authority to be best calculated to bring it to the attention of the public.
( ) The Authority may charge a reasonable fee for providing a person with a copy of the direction.
( ) The Authority must, without delay, give the Treasury a copy of any direction which it gives under this section.".—[Miss Melanie Johnson.]

Clause 294

CONSULTATION

Amendments made: No. 333, in page 151, line 21, leave out
If the Authority proposes to give
and insert "Before giving".
No. 334, in page 151, line 22, leave out "it" and insert "the Authority".
No. 335, in page 151, line 24, leave out from beginning to "and", in line 25, and insert "a cost benefit analysis".
No. 336, in page 151, line 26, leave out "a statement" and insert "notice".
No. 337, in page 151, line 27, leave out "reasonable" and insert "specified".
No. 338, in page 151, line 30, leave out from "publish" to end of line 31 and insert—
an account, in general terms, of".
No. 339, in page 151, line 37, leave out "publish a statement" and insert—
(in addition to complying with subsection (4)) publish details".
No. 340, in page 151, line 38, leave out "the statement" and insert "those details".
No. 341, in page 151, line 42, leave out from beginning to "of in line 4 on page 152 and insert—
( ) Neither subsection (2)(a) nor subsection (5)(b) applies if the Authority considers—

(a) that, making the appropriate comparison, there will be no increase in costs; or
(b) that, making that comparison, there will be an increase in costs but the increase will be".

No. 342, in page 152, line 10, at end insert—
( ) "Cost benefit analysis" means an estimate of the costs together with an analysis of the benefits that will arise—

(a) if the proposed direction is given; or
(b) if subsection (5)(b) applies, from the direction that has been given.



( ) "The appropriate comparison" means—

(a) in relation to subsection (2)(a), a comparison between the overall position if the direction is given and the overall position if it is not given;
(b) in relation to subsection (5)(b), a comparison between the overall position after the giving of the direction and the overall position before it was given.".—[Miss Melanie Johnson.]

Clause 314

DISCLOSURE OF INFORMATION BY THE INLAND REVENUE

Miss Melanie Johnson: I beg to move amendment No. 146, in page 162, line 29, leave out from beginning to "may" and insert—
Information obtained as a result of subsection (1)".

Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 147 to 153.

Miss Johnson: The amendments are drafting changes intended to make it clear that the restrictions on the use of information in the clause apply only to information that has been provided by the Inland Revenue to the Secretary of State, or the FSA under the powers of the clause, and not to any other sort of information. I commend the amendments to the House.

Amendment agreed to.
Amendments made: No. 147, in page 162, line 41, leave out from beginning to "may" and insert—
Information obtained as a result of subsection (1)".
No. 148, in page 163, line 3, leave out "Revenue information" and insert—
information obtained as a result of subsection (1)".—[Miss Melanie Johnson.]

Clause 315

OFFENCES

Amendments made: No. 149, in page 163, line 9, after "312" insert "or 314(5)".
No. 150, in page 163, line 16, leave out from "if" to end of line 18, and insert—
, in contravention of any provision of regulations made under section 313, he uses information which has been disclosed to him in accordance with the regulations".
No. 151, in page 163, line 18, at end insert—
(3A) A person is guilty of an offence if, in contravention of subsection (4) of section 314, he uses information which has been disclosed to him in accordance with that section.".
No. 152, in page 163, line 19, after "(3)" insert "or (3A)".
No. 153, in page 163, line 25, after second "information" insert—
or that it had been disclosed in accordance with section 314".—[Miss Melanie Johnson.]

Clause 351

THE AUTHORITY'S PROCEDURES

Amendments made: No. 343, in page 181, line 31, leave out from "in" to "it", in line 32, and insert—
the way appearing to the Authority to be best calculated to bring".
No. 344, in page 181, line 32, at end insert—
( ) The Authority may charge a reasonable fee for providing a person with a copy of the statement.
( ) The Authority must, without delay, give the Treasury a copy of any statement which it issues under this section.".—[Miss Melanie Johnson.]

Clause 363

DEFINITIONS

Amendments made: No. 420, in page 188, line 19, at end insert—
 "authorised open-ended investment company" has the meaning given in section 211(5);".
No. 154, in page 189, line 4, at end insert—
exempt person", in relation to a regulated activity, means a person who is exempt from the general prohibition in relation to that activity as a result of an exemption order made under section 34(1) or as a result of section 35(1) or 260(2) or (3);".
No. 155, in page 189, leave out line 25
No. 156, in page 189, line 45, at end insert—
 "rule-making instrument" has the meaning given in section 125;".
No. 157, in page 190, line 8, at end insert—
 "threshold conditions", in relation to a regulated activity, has the meaning given in section (The threshold conditions);".—[Miss Melanie Johnson.]

Clause 364

CARRYING ON ACTIVITIES IN THE UNITED KINGDOM

Amendments made: No. 421, in page 190, line 20, leave out "three" and insert "four".
No. 422, in page 190, line 28, leave out from "Kingdom" to end of line 29 and insert—
( ) he is entitled to exercise rights under a single market directive as a UK firm; and
( ) he is carrying on in another EEA State a regulated activity to which that directive applies.
( ) The second case is where—

(a) his registered office (or if he does not have a registered office his head office) is in the United Kingdom;
(b) he is the manager of a scheme which is entitled to enjoy the rights conferred by an instrument which is a relevant Community instrument for the purposes of section 239; and
(c) persons in another EEA State are invited to become participants in the scheme.".

No. 423, in page 190, line 30, leave out "second" and insert "third".
No. 424, in page 190, line 33, leave out paragraph (b).
No. 425, in page 190, line 35, leave out "that" and insert "the regulated".
No. 426, in page 190, line 40, leave out "third" and insert "fourth".—[Miss Melanie Johnson.]

Clause 373

REGULATIONS AND ORDERS

Amendments made: No. 427, in page 194, line 41, at end insert—
( ) The Lord Chancellor's power to make rules under section 107 is exercisable by statutory instrument.".
No. 428, in page 194, line 44, leave out "Treasury consider" and insert "person making it considers".—[Miss Melanie Johnson.]

Clause 374

PARLIAMENTARY CONTROL OF STATUTORY INSTRUMENTS

Amendments made: No. 429, in page 195, line 3, leave out "237" and insert—
"(Carrying on regulated activities by way of business)"
No. 430, in page 195, line 6, at end insert—
( ) No regulations are to be made under section 237 unless a draft of the regulations has been laid before Parliament and approved by a resolution of each House.".
No. 431, in page 195, line 7, leave out from beginning to second "to" and insert—
An order to which, if it is made, subsection (4) will apply is not".
No. 432, in page 195, line 10, leave out subsection (3).
No. 433, in page 195, line 13, leave out "made".
No. 434, in page 195, line 17, at end insert—
( ) it is the first order to be made, or to contain provision made, under section 19(5);".
No. 435, in page 195, line 22, leave out subsection (5).
No. 455, in page 195, line 24, at end insert—
(5A) An order containing a provision to which, if the order is made, subsection (5B) will apply is not to be made unless a draft of the order has been laid before Parliament and approved by a resolution of each House.
(5B) This subsection applies to a provision contained in an order if—

(a) it is the first to be made in the exercise of the power conferred by subsection (1) of section (Designation of professional bodies) or it removes a body from those for the time being designated under that subsection; or
(b) it is the first to be made in the exercise of the power conferred by subsection (6) of section (Exemption from the general prohibition) or it adds a description of regulated activity or investment to those for the time being specified for the purposes of that subsection.".

No. 436, in page 195, line 26, after "376(2)" insert—
or to which paragraph 26 of Schedule 2 applies".—[Miss Melanie Johnson.]

New Schedule 1

TRANSFER SCHEMES: CERTIFICATES

PART I

INSURANCE BUSINESS TRANSFER SCHEMES

1.—(1) For the purposes of section (Sanction of the court for business transfer schemes)(3) the appropriate certificates, in relation to an insurance business transfer scheme, are—

(a) a certificate under paragraph 2;
(b) if sub-paragraph (2) applies, a certificate under paragraph 3;
(c) if sub-paragraph (3) applies, a certificate under paragraph 4;

(d) if sub-paragraph (4) applies, a certificate under paragraph 5.

(2) This sub-paragraph applies if—

(a) the authorised person concerned is a UK authorised person which has received authorisation under Article 6 of the first life insurance directive or of the first non-life insurance directive from the Authority; and
(b) the establishment from which the business is to be transferred under the proposed insurance business transfer scheme is in an EEA State other than the United Kingdom.

(3) This sub-paragraph applies if—

(a) the authorised person concerned has received authorisation under Article 6 of the first life insurance directive from the Authority;
(b) the proposed transfer relates to long-term insurance business; and
(c) as regards any policy which is included in the proposed transfer and which evidences a contract of insurance (other than reinsurance), an EEA State other than the United Kingdom is the State of the commitment.

(4) This sub-paragraph applies if—

(a) the authorised person concerned has received authorisation under Article 6 of the first non-life insurance directive from the Authority;
(b) the business to which the proposed insurance business transfer scheme relates is general insurance business; and
(c) as regards any policy which is included in the proposed transfer and which evidences a contract of insurance (other than reinsurance), the risk is situated, in an EEA State other than the United Kingdom.

Certificates as to margin of solvency

2.—(1) A certificate under this paragraph is to be given—

(a) by the relevant authority; or
(b) in a case in which there is no relevant authority, given by the Authority.

(2) A certificate given under sub-paragraph (1)(a) is one certifying that, taking the proposed transfer into account—

(a) the transferee possesses, or will possess before the scheme takes effect, the necessary margin of solvency; or
(b) there is no necessary margin of solvency applicable to the transferee.

(3) A certificate under sub-paragraph (1)(b) is one certifying that the Authority has received from the authority which it considers to be the authority responsible for supervising insurance companies in the place to which the business is to be transferred that, taking the proposed transfer into account—

(a) the transferee possesses or will possess before the scheme takes effect the margin of solvency required under the law applicable in that place; or
(b) there is no such margin of solvency applicable to the transferee.

(4) "Necessary margin of solvency" means the margin of solvency required in relation to the transferee, taking the proposed transfer into account, under the law which it is the responsibility of the relevant authority to apply.

(5) "Margin of solvency" means the excess of the value of the assets of the transferee over the amount of its liabilities.

(6) "Relevant authority" means—

(a) if the transferee is an EEA firm falling within paragraph 5(d) of Schedule 3, its home state regulator;
(b) if the transferee is a Swiss general insurance company, the authority responsible for supervising insurance companies in Switzerland;


 (c) if the transferee is an authorised person not falling within paragraph (a) or (b), the Authority.

(7) In sub-paragraph (6), any reference to a transferee of a particular description includes a reference to a transferee who will be of that description if the proposed scheme takes effect.

(8) "Swiss general insurance company" means a company—

(a) whose head office is in Switzerland;
(b) which has permission to carry on regulated activities consisting of the effecting and carrying out of general insurance contracts; and
(c) whose permission is not restricted to reinsurance business.

Certificates as to consent

3. A certificate under this paragraph is one given by the Authority and certifying that the host State regulator has been notified of the proposed scheme and that—

(a) that regulator has responded to the notification; or
(b) that it has not responded but the period of three months beginning with the notification has elapsed.

Certificates as to long-term business

4. A certificate under this paragraph is one given by the Authority and certifying that the authority responsible for supervising insurance companies in the State of the commitment has been notified of the proposed scheme and that—

(a) that authority has consented to the proposed scheme; or
(b) the period of three months beginning with the notification has elapsed and that authority has not refused its consent.

Certificates as to general business

5. A certificate under this paragraph is one given by the Authority and certifying that the authority responsible for supervising insurance companies in the EEA State in which the risk is situated has been notified of the proposed scheme and that—

(a) that authority has consented to the proposed scheme; or
(b) the period of three months beginning with the notification has elapsed and that authority has not refused its consent.

Interpretation of Part I

6.—(1) "State of the commitment", in relation to a commitment entered into at any date, means—


(a) if the policyholder is an individual, the State in which he had his habitual residence at that date;
(b) if the policyholder is not an individual, the State in which the establishment of the policyholder to which the commitment relates was situated at that date.

(2) "Commitment" means a commitment represented by insurance business of a prescribed class.

(3) References to the EEA State in which a risk is situated are—


(a) if the insurance relates to a building or to a building and its contents (so far as the contents are covered by the same policy), to the EEA State in which the building is situated;
(b) if the insurance relates to a vehicle of any type, to the EEA State of registration;
(c) in the case of policies of a duration of four months or less covering travel or holiday risks (whatever the class concerned), to the EEA State in which the policyholder took out the policy;
(d) in a case not covered by paragraphs (a) to (c)—

(i) if the policyholder is an individual, to the EEA State in which he has his habitual residence at the date when the contract is entered into; and
(ii) otherwise, to the EEA State in which the establishment of the policyholder to which the policy relates is situated at that date.

PART II

BANKING BUSINESS TRANSFER SCHEMES

7.—(1) For the purposes of section (Sanction of the court for business transfer schemes)(3) the appropriate certificates, in relation to a banking business transfer scheme, are—

(a) a certificate under paragraph 8; and
(b) if sub-paragraph (2) applies, a certificate under paragraph 9.

(2) This sub-paragraph applies if the authorised person concerned or the transferee is an EEA firm falling within paragraph 5(b) of Schedule j05036.s.

Certificates as to ,financial resources

8.—(1) A certificate under this paragraph is one given by the relevant authority and certifying that, taking the proposed transfer into account, the transferee possesses, or will possess before the scheme takes effect, adequate financial resources.

(2) "Relevant authority" means—

(a) if the transferee is a person with a Part IV permission or with permission under Schedule j04188.s, the Authority;
(b) if the transferee is an EEA firm falling within paragraph 5(b) of Schedule j05036.s, its home state regulator;
(c) if the transferee does not fall within paragraph (a) or (b), the authority responsible for the supervision of the transferee's business in the place in which the transferee has its head office.

(3) In sub-paragraph (2), any reference to a transferee of a particular description of person includes a reference to a transferee who will be of that description if the proposed banking business transfer scheme takes effect.

Certificates as to consent of home state regulator

9. A certificate under this paragraph is one given by the Authority and certifying that the home State regulator of the authorised person concerned or of the transferee has been notified of the proposed scheme and that—

(a) the home State regulator has responded to the notification; or
(b) the period of three months beginning with the notification has elapsed.".—[Miss Melanie Johnson.]

Brought up, read the First and Second time, and added to the Bill.

New Schedule 2

ROLE OF THE COMPETITION COMMISSION

Provision of information by Treasury

1.—(1) The Treasury's powers under this paragraph are to be exercised only for the purpose of assisting the Commission in carrying out an investigation under section (Consideration by Competition Commission).

(2) The Treasury may give to the Commission—

(a) any information in their possession which relates to matters falling within the scope of the investigation; and
(b) other assistance in relation to any such matters.

(3) In carrying out an investigation under section (Consideration by Competition Commission), the Commission must have regard to any information given to it under this paragraph.

Consideration of matters arising on a report

2. In considering any matter arising from a report made by the Director under section (Reports by Director General of Fair Trading), the Commission must have regard to—

(a) any representations made to it in connection with the matter by any person appearing to the Commission to have a substantial interest in the matter; and
(b) any cost benefit analysis prepared by the Authority (at any time) in connection with the regulatory provision or practice, or any of the regulatory provisions or practices, which are the subject of the report.

Applied provisions

3.—(1) The provisions mentioned in sub-paragraph (2) are to apply in relation to the functions of the Commission under section (Consideration by Competition Commission) as they apply in relation to the functions of the Commission in relation to a reference to the Commission under the Fair Trading Act 1973.

(2) The provisions are—

(a) section 82(2), (3) and (4) of the Fair Trading Act 1973 (general provisions about reports);
(b) section 85 of that Act (attendance of witnesses and production of documents);
(c) section 93B of that Act (false or misleading information);
(d) section 24 of the Competition Act 1980 (modifications of provisions about the performance of the Commission's functions);
(d) Part II of Schedule 7 to the Competition Act 1998 (performance by the Commission of its general functions).

(3) But the reference in paragraph 15(7)(b) in Schedule 7 to the 1998 Act to section 75(5) of that Act is to be read as a reference to the power of the Commission to decide not to make a report in accordance with section (Consideration by Competition Commission)(2).

Publication of reports

4.—(1) If the Commission makes a report under section (Consideration by Competition Commission), it must publish it in such a way as appears to it to be best calculated to bring it to the attention of the public.

(2) Before publishing the report the Commission must, so far as practicable, exclude any matter which relates to the private affairs of a particular individual the publication of which, in the opinion of the Commission, would or might seriously and prejudicially affect his interests.

(3) Before publishing the report the Commission must, so far as practicable, also exclude any matter which relates to the affairs of a particular body the publication of which, in the opinion of the Commission, would or might seriously and prejudicially affect its interests.

(4) Sub-paragraphs (2) and (3) do not apply in relation to copies of a report which the Commission is required to send under section (Consideration by Competition Commission)( 10).".—[Miss Melanie Johnson.]

Brought up, read the First and Second time, and added to the Bill.

Schedule 1

THE FINANCIAL SERVICES AUTHORITY

Amendments made: No. 345, in page 198, line 8, leave out "or varying".
No. 346, in page 198, line 9, leave out "details of its proposals" and insert—
a draft of the proposed scheme in the way appearing to the Authority to be best calculated to bring it to the attention of the public".
No. 347, in page 198, line 10, leave out "published proposals" and insert "draft".
No. 348, in page 198, line 10, leave out "a statement" and insert "notice".
No. 349, in page 198, line 11, leave out from "Authority" to end of line 12 and insert "within a specified time".
No. 350, in page 198, line 13, leave out "carrying out its proposals" and insert—
making the proposed complaints scheme".
No. 351, in page 198, line 14, at end insert—
(6A) If the Authority makes the proposed complaints scheme, it must publish an account, in general terms, of—

(a) the representations made to it in accordance with sub-paragraph (5); and
(b) its response to them.

(6B) If the complaints scheme differs from the draft published under sub-paragraph (4) in a way which is, in the opinion of the Authority, significant the Authority must (in addition to complying with sub-paragraph (6A)) publish details of the difference.".
No. 352, in page 198, line 17, leave out "arrangements" and insert "provision".
No. 353, in page 198, line 19, at beginning insert "Those".
No. 354, in page 198, line 19, leave out "most suitable for bringing" and insert "best calculated to bring".
No. 355, in page 198, line 20, at end insert—
(9) The Authority must, without delay, give the Treasury a copy of any details published by it under this paragraph.
(10) The Authority may charge a reasonable fee for providing a person with a copy of—

(a) a draft published under sub-paragraph (4);
(b) details published under sub-paragraph (7).


(11) Sub-paragraphs (4) to (6B) and (10)(a) also apply to a proposal to alter or replace the complaints scheme.".
No. 356, in page 200, line 38, at end insert—
( ) Up to date details of the scheme must be set out in a document ("the scheme details").
( ) The scheme details must be published by the Authority in the way appearing to it to be best calculated to bring them to the attention of the public.".
No. 357, in page 200, line 39, leave out "or varying".
No. 358, in page 200, line 39, leave out "details of its proposals" and insert—
a draft of the proposed scheme in the way appearing to the Authority to be best calculated to bring it to the attention of the public".
No. 359, in page 200, line 41, leave out
published proposals must be accompanied by a statement
and insert
draft must be accompanied by notice".
No. 360, in page 200, line 42, leave out "them" and insert "the proposals".
No. 361, in page 200, line 42, leave out from "Authority" to end of line 43 and insert "within a specified time".
No. 362, in page 201, line 1, leave out "carrying out its proposals" and insert "making the scheme".
No. 363, in page 20], line 2, at end insert—
(7) If the Authority makes the proposed scheme, it must publish an account, in general terms, of—

(a) the representations made to it in accordance with sub-paragraph (5); and
(b) its response to them.

(8) If the scheme differs from the draft published under subparagraph (4) in a way which is, in the opinion of the Authority, significant the Authority must (in addition to complying with subparagraph (7)) publish details of the difference.
(9) The Authority must, without delay, give the Treasury a copy of any scheme details published by it.
(10) The Authority may charge a reasonable fee for providing a person with a copy of—

(a) a draft published under sub—paragraph (4);
(b) scheme details.

(11) Sub—paragraphs (4) to (8) and (10)(a) also apply to a proposal to alter or replace the complaints scheme.".—[Miss Melanie Johnson.]

Mr. David Davis: I beg to move amendment No. 483, in page 202, line 4, at end insert—

Value for money examinations

22. Section 6 of the National Audit Office Act 1983 (which enables the Comptroller and Auditor General to conduct examinations into the economy, efficiency and effectiveness with which certain departments, authorities and bodies have used their resources) shall apply to the Authority.".

The amendment's purpose is to secure the accountability of the FSA to Parliament. There are important reasons why Parliament should put in place effective accountability arrangements. First, the authority will have a significant impact on a major sector of the economy and will carry out major public policy functions. It will prescribe and exercise far-reaching controls and regulations over a wide range of businesses and in the interests of society at large, as well as the consumers who use financial services. Therefore, although constituted as a private company, the authority will have a statutory objective and will carry out public policy.
Some of those functions, such as the regulation of building societies and insurance, are currently undertaken by bodies subject to the scrutiny of Comptroller and Auditor General and hence of the Public Accounts Committee on behalf of Parliament. Without the amendment, that scrutiny will be lost. That would be a move backwards.
The authority will be funded by fees paid by registered firms, a form of compulsory levy, or directly hypothecated tax, in effect, on the financial services industry. Widespread concerns have been expressed—among others by those firms that will be required to fund the authority—that the Government's original proposals, which are reflected in the Bill, do not provide for full independent scrutiny on behalf of Parliament, for example, the Securities Institute and the London Investment Banking Association have expressed support for the idea of the CAG undertaking such scrutiny.
The CAG would be well placed to provide such independent scrutiny. He would bring the necessary authority to that role and be in a strong position to assess the authority's performance against its statutory objectives. The National Audit Office already has considerable expertise as the external auditor of the

other principal regulators—the electricity, gas, rail, telecommunications, water industries and the Office of Fair Trading—and would be able to provide valuable assistance to the authority, to the Treasury and to Parliament.
On a basis of CAG reports, the PAC has published a number of reports on those regulatory authorities. Their value has been publicly recognised by the Government. In March 1998, the President of the Board of Trade, in a report to Parliament, noted that
a recent Public Accounts Committee inquiry into regulatory methodology was instrumental in securing closer collaboration between regulatory offices",
and concluded that
the current Parliamentary arrangement have allowed for effective scrutiny of utility regulation".
I acknowledge that the Bill provides that the authority will be required to produce an annual report to Parliament, on the basis of which it can be questioned on its activities. Clause 10 provides that the Treasury can commission independent reviews of the authority's performance and will be able to choose who undertakes such reviews.
8 pm
In Committee in July, the then Financial Secretary to the Treasury said that it would be open to the Treasury to appoint the NAO to carry out a particular review and that that option would be considered carefully. That is all very well, but there is no substitute for giving the Comptroller and Auditor General, and therefore Parliament, the right to examine the authority as a basis on which it can be satisfactorily scrutinised. In particular, it would be for the Treasury to decide if and when such a review should take place and to prescribe the terms of reference. In my judgment, that takes away rights from individual Members of Parliament, for example to ask for a review as a result of a constituent's problems.
In tabling the amendment I recognise that the option of the CAG being able to examine the authority has already been considered during the progress of the Bill. The Joint Committee on Financial Services and Markets, which examined the draft Bill, studied the issue but did not support access for the CAG on the ground that the authority will be paid for by the industry and not the taxpayer. That argument is entirely disingenuous. On that basis, we would not have access to Camelot and a series of bodies that carry out a public function. The authority will be performing a public function and, bluntly, its charges can be seen as akin to a directly hypothecated tax. Therefore, such arrangements call for fully independent scrutiny on behalf of Parliament.
It should also be noted that the CAG already has access to a number of limited companies that undertake public functions, such as the Student Loans Company and Remploy, on which he has usefully reported.
The Joint Committee also believed that parliamentary scrutiny could best be achieved by asking a parliamentary Committee to review the authority' s annual report and to take regular evidence from a broad section of consumers and practitioners. The Joint Committee did not suggest which Committee should do so, or how the work would be resourced. Were the Public Accounts Committee to do it, it would expect to have evidence from the CAG. It is difficult to see how a Committee could exercise effective


scrutiny without some form of report based on access to the authority's papers. I say that as the Chairman of the Committee that carries out most of the scrutiny of such matters in the House.
In Committee, the Government rejected an amendment to clause 10 that would have required the Treasury to appoint the Comptroller and Auditor General as the independent person undertaking reviews. In doing so, the Government argued in addition that the Treasury might wish to use someone else to undertake some types of review and that the CAG ought not to conduct any review that might question policy objectives. I entirely accept the last point.
This amendment deals with both arguments and leaves the Treasury free to use clause 10 to commission other types of independent review, including those involving policy objectives. It applies the bar on the CAG questioning policy objectives—that is built into the National Audit Office Act 1983.
The House has considered amendments to clause 10 that would deal with the independence of Treasury review and make periodic reviews mandatory. Although those amendments did not refer to the CAG, my hon. Friend the Member for Chichester (Mr. Tyrie) considered in Committee that the Government had not explained why providing for the Comptroller and Auditor General to conduct the independent reviews was not a reasonable approach. We have not had an answer to that argument. My hon. Friend also referred to the benefits of the CAG reporting to the PAC. In response, the Financial Secretary referred elliptically to the burdens associated with mandatory reviews and to the Joint Committee.
The amendment has the advantage of providing the independent evidence that effective scrutiny by a parliamentary Committee, as recommended by the Joint Committee, would require. It does not specify how frequently the reviews should be undertaken. That is left to the CAG's discretion. In exercising that discretion, he would of course consult the Treasury and the authority as to the timing and the matters that he would be examining. I have discussed that matter with him.
If the authority is to get off to a good start, it needs to secure the confidence of the financial services industry. A clear line of accountability to Parliament, accompanied by independent assessment of performance by the CAG would go a long way to achieving that.

Mr. Cousins: I do not support the amendment, or its terms. None the less, it raises an important and interesting point. I do not see why it is sensible to accept that the National Audit Office will be the agency that will carry out reviews at this stage, nor do I think—as the FSA is to be one of the most closely monitored and scrutinised public statutory bodies—that such an amendment is necessary. I am not happy with the idea that the NAO could undertake policy reviews of the authority. That would in some way usurp the responsibilities that the Government intend to give to Parliament.

Mr. Davis: That is precisely the opposite of what I said. The use of the National Audit Office Act proscribes any investigation by the Comptroller and Auditor General into the merits of policy. He is not allowed to do that

under that Act and that is why the extension of the clause is there. That is also why the Treasury can use other investigators to look into policy matters.

Mr. Cousins: I am grateful for that intervention. I had understood the right hon. Gentleman to be saying that he wanted the NAO to review the objectives of the FSA. If I have misunderstood him—

Mr. Davis: I think I used the term, "the achievement of objectives". That is what the NAO does—it studies effectiveness in the achievement of pre-set objectives.

Mr. Cousins: I am grateful for the clarification. However, it points to some of my anxieties and my difficulty in supporting the amendment. The important point is that the Government intend that the FSA will make an annual report to Parliament. They also intend that a parliamentary Committee will be responsible for scrutinising the authority's work. However that is to be done, and whoever is to do it—the Minister may not wish to go into detail about that at this stage—what resources are to be made available to Parliament through the mechanism of whichever Committee is to be responsible for carrying out that duty effectively? That is the important question. We should consider whether the NAO, or some agency that could be commissioned if resources were available, would be accessible to whichever Committee had the task of scrutinising and reviewing the FSA so that Parliament might be better and more fully informed. Committees often do not have the resources that they want to carry out their scrutiny functions effectively. I urge my hon. Friend the Minister to bear at least that point in mind, but I do not support the amendment.

Miss Melanie Johnson: I understand why the right hon. Member for Haltemprice and Howden (Mr. Davis) tabled the amendment and I know that he has already argued his case on behalf of the Public Accounts Committee in a memorandum to Lord Burns Joint Committee, as well as arguing it fulsomely in connection with another Bill.
Clause 10 provides that the Treasury may appoint an independent person to conduct a review of the economy, efficiency and effectiveness with which the FSA has used its resources in discharging its functions. However, it does not provide that the NAO must always carry out such reviews. I am not apologetic about that. In some cases, if the Treasury concluded that a review was justified, it might want to ask the NAO to do the job and nothing would prevent it from doing so. However, on other occasions, the Treasury may wish to appoint another body to perform that task. If so, that would not be any reflection on the NAO's expertise or professionalism, but simply of the fact that another body may be more familiar with how the financial markets work, and thus the constraints under which the FSA operates. A different body may be more appropriate to perform the task in a particular case.

Mr. David Davis: I take the hon. Lady's point entirely. As we heard from the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), preclusion from policy might be another reason for having a body other than the NAO perform the task. However, in answering my points, I hope that the Minister will answer the simple question of how


direct accountability to Parliament will be achieved. If hon. Members themselves want to raise an issue about the FSA's performance—not about its policy—how will they do so if their only mediator is the Treasury?

Miss Johnson: I am happy to answer the question, but should first say that, if the amendment were accepted, it would create a dual system in which the Treasury could initiate a review under clause 10, whereas the National Audit Office might begin its own review under the amendment. I am not sure whether the right hon. Gentleman intends his amendment to have that effect, but, as drafted, it certainly has the potential to cause overlap and confusion.
Therefore, although I certainly agree that the FSA should be susceptible to value-for-money scrutiny, we share the Burns committee's conclusion—to which the right hon. Gentleman referred in his earlier remarks—that
The NAO rightly seeks to follow public money wherever it goes, but the FSA will be paid for by the industry, not the taxpayer.
The right hon. Gentleman advanced some arguments that he felt countered that fact, but many people would say that the FSA is in a different position from other bodies and that his arguments might be stronger in relation to those.
The right hon. Gentleman asked how the FSA can be held to account. It is important to recognise that much stronger accountability requirements—both to Ministers and to Parliament—are being imposed on the FSA than were imposed on its many predecessor bodies, some of which he also referred to. There is, for example, provision for the Treasury to appoint and remove the board. Additionally, non-executives will have to report annually on the FSA's efficiency and economy, and that report will have to be laid before Parliament. We should also fully expect that report to be debated by Parliament. The Treasury could also commission inquiries into regulatory failures.
We feel that the best way of ensuring full accountability to Parliament would be to ask—as the Burns committee did—a parliamentary Committee to review the FSA's annual report and to take regular evidence from a broad spectrum of consumers and practitioners.

Mr. Cousins: rose—

Mr. David Davis: Will the hon. Lady give way?

Miss Johnson: I shall happily give way.

Mr. Davis: I thought that there was a great deal of power in the point made by the hon. Member for Newcastle upon Tyne, Central—who may want to intervene on this point himself—on parliamentary Committees' resources and access. I wholly agree with the Minister's comments on the right to dismiss the board and the other powers that she mentioned. However, all of that depends on the information that is available to Parliament. Without the right information, all those decisions are not only irrelevant, but would certainly be ill-founded. The availability of impartial information is a specific concern, and a report produced by the body itself could not conceivably be seen in such terms.

Miss Johnson: I apologise to my hon. Friend the Member for Newcastle upon Tyne, Central, who I did not realise was trying to intervene. I am grateful to the right hon. Gentleman for drawing it to my attention.

We are not suggesting that the body should not be subject to value-for-money scrutiny; we believe quite the reverse. Criteria will be established under which the FSA will be subjected to value-for-money scrutiny. The only disagreement that I have with the right hon. Gentleman on that point is whether it must be the National Audit Office that performs that role, and whether the Bill should specify that, in all circumstances, the National Audit Office must perform that role. That is the only issue between us. In every other way, I should expect exactly the type of information and reviews that he mentioned to be submitted to the House and subjected to the full panoply of parliamentary scrutiny.

Mr. Cousins: I am most grateful to the Minister for those comments, and should like to pursue the points made by the right hon. Member for Haltemprice and Howden. Currently, the Treasury Select Committee—of which I, like some other hon. Members in the Chamber, am a member—scrutinises the FSA's work. Although I cannot prejudge what the Committee will do in future, I am reasonably confident that we intend to continue to scrutinise it. However, the issue arises of access to sufficient resources to perform that work of scrutiny of a body such as the Financial Services Authority will be after the Bill is passed.
The FSA will be a powerful and significant body, and there should be sufficient resources to perform proper scrutiny. Although I realise that my hon. Friend might regard that as a matter for the authorities of the House rather than for Ministers, the issue is so important that—even if it were to be seen as a matter for the authorities of the House—the Government's guidance and intentions on the issue now would be significantly advantageous.

Miss Johnson: I am grateful to my hon. Friend for those comments. However, I am a little puzzled by his difficulties on the matter. Obviously, the FSA would be audited and subjected not only to value-for-money scrutiny, but to reviews on effectiveness and on fulfilling other criteria. The scrutiny and reviews will be done by those who are appointed to do them, and they will be reported. Therefore, all the information will be available. Moreover, future difficulties in scrutiny will be the same as those that already exist—such as hon. Members' ability to find sufficient time and to put in the effort to review all the information that is produced by those activities, to ensure that the information is subjected to the scrutiny and oversight that it merits.
I do not think that the difficulties encountered in scrutinising the FSA under the arrangement that we envisage will be any different from, or greater than, those currently confronting the House or Committees in scrutinising the authority.

Mr. David Davis: The hon. Lady has been very courteous in giving way so many times. The hon. Member for Newcastle upon Tyne, Central made a valid point. Even before that, however, the issue of access was raised. The Select Committee on the Treasury is probably the proper Committee to deal with the matter. However, even if it had sufficient resources, it would not be able to gain


sufficient access on its own back, but would still have to use the mediation of the Treasury itself. I do not believe that that is acceptable for parliamentary accountability.

Miss Johnson: The FSA will have to be reviewed and to subject itself to such scrutiny, and will not have the option of deciding whether to undergo those processes. Therefore, that information and those reports will come back to Parliament and be available for hon. Members to debate and consider. Specifically, presentation of the annual report to Parliament will be a major occasion. In the annual report, non-executives are required to report on both efficiency and economy.
I am quite confident that the arrangements that we have provided in the Bill are entirely satisfactory. In meeting the desires of the right hon. Member for Haltemprice and Howden, the arrangements fail in only one respect—they do not, in totality, specify the National Audit Office. Although I am sorry to disappoint him again, I trust that the House will not support amendment No. 483.

Mr. David Davis: I beg to ask leave to withdraw the amendment.
Amendment, by leave, wthdrawn.

Schedule 2

REGULATED ACTIVITIES

Dr. Cable: I beg to move amendment No. 444, in page 205, line 12, at end insert—

Mortgages for house purchase

"23A. The provision of loans for the purchase of property for residential use, where the obligation of the borrower to repay the lender is secured on the value of the property in question.".

I realise that, for the first time in its long passage in the House, the Bill is ahead of the clock. I do not intend to fill the remaining 40 minutes, but should like to return to an issue that I raised in Committee—mortgages, and how they are handled in the Bill and by the FSA. There is a paradox here, in that the aspect of financial services regulation and the work of the FSA that will have the greatest impact on our constituents is almost certainly the one relating to mortgages, yet it has been subject to very little discussion during the passage of the Bill.
It might be useful to recap briefly how the issue has emerged. It was subject to considerable discussion at the pre-legislative stage by the Select Committee on the Treasury and by the Joint Committee. There was consensus at that point that mortgages should be regulated under the Bill. Last year, there was a strong media offensive by the Chancellor and the Secretary of State for Trade and Industry, who pointed to the many areas of abuse in the market and made it clear that regulation was urgent, overdue and needed to be draconian.
We then discussed the Bill in Committee, and the Government and the Treasury properly went through a process of public consultation. It was a little discordant, in the sense that there was a difference between Ministers and officials as to whether it should be a statutory or a voluntary process. We were promised that the Government would report eventually, and that a policy would be announced. It emerged in the new year.
The announcement of mortgage regulation was not made to Parliament. It has not been presented here, and the proposals have never been discussed here. As far as I know, there are no proposals to discuss the proposals here. I hope that, at the very least, this short debate will provide an opportunity for people to react to what the Government have done, although the specific purpose of the amendment is to make the regulation of mortgages explicit in the Bill.
I do not want to comment at length about what the Government have decided. I have read the newspapers like everyone else, and I have formed a preliminary judgment. I do not understand why it has been decided to split the regulatory control of mortgages. The whole rationale of the Bill was that we would have a one-stop shop for regulation which would be simple and clear. However, mortgages will be split depending on their size.

Miss Melanie Johnson: indicated dissent.

Dr. Cable: The Minister shakes her head, and this may be a point that she can be clear up quickly. My understanding was that small loans would be covered by consumer credit legislation, rather than through the FSA. I had understood that there was to be dual responsibility for mortgage regulation between two separate Government Departments. I hope that that will be made clear.
Why have the Government chosen to defer the introduction of mortgage regulation until what would appear to be the latest possible time? There are two perfectly legitimate lines of argument. One is that there are serious problems of the abuse of consumers—I thought that this was the view of Ministers—and that mortgage regulation was urgent and important, in which case it should be brought within the FSA as quickly as possible. The other view, which some Conservative Members have argued—it is a perfectly plausible argument—is that self-regulation was working perfectly well, the mortgage lenders were learning as they were going along, and there was no need to change the system. They thought that the system should be spun out for as long as possible.
What is the rationale behind the timing that Ministers have chosen, which is to introduce the system over 18 months? Is it because that is the time needed to staff the FSA? There may be perfectly good practical reasons.
My understanding is that mortgage advice is not to be regulated in the same way as mortgage lending. This appears to imply that an independent financial adviser mis-selling a mortgage package and giving bad advice is exempted from the proposed regulatory provisions. That seems odd. I can understand why the authorities might wish to encourage independent financial advice—which, in itself, is a good thing. Independent financial advice is desirable, rather than tied advice. However, exempting it altogether from the provisions of mortgage regulation seems odd, since we are aware from the private pensions sector that a lot of the malpractices occurred in the IFA sector—not that the IFAs should be the scapegoats. If there are abuses, they apply to the independent advisory bodies as well as to the mortgage lenders. Why regulate one and not the other? The reasoning behind that is unclear.
I want to understand how some of the matters which most concern people about mortgage lending will be dealt with under the new regime. For example, redemption


penalties trouble many people who take out a fixed-rate mortgage on attractive terms and then pay a heavy redemption penalty if they repay early. How will the system outlaw, change or manage that?
If someone goes to a building society or a bank to take out a mortgage, they are under a lot of pressure. They are told that they can have a mortgage, provided they take an endowment or the society's insurance policy. How will that activity be regulated under the proposals? I ask these questions in all innocence, as I do not know how the system will work. I am as much concerned with getting answers as I am with establishing the process by which the House will conduct the debate.
There are at least three members of the Select Committee on the Treasury here and, in due course, the Committee will be looking at this matter. However, it would seem appropriate, given the importance of the subject to large numbers of people, that we should have a proper opportunity to discuss what mortgage regulation will be about.

Mr. Flight: I wish to echo much of what the hon. Member for Twickenham (Dr. Cable) has said. When I read the Government's announcement casually, it seemed reasonable. It was only when I looked into it that, regrettably, I saw that the spin papered over some major problems.
There are various issues to discuss. First, is the FSA capable of providing the regulation that is needed and appropriate? Is the reason for delay that Howard Davies has too much on his hands? The Treasury has signalled that it was cautious, as the large players wanted regulation and we were heading for a form of regulation which would encourage cartels, rather than competition.
It is important that the regulation of mortgages is the first time we have moved from regulating the asset side to the liability side. If we regulate borrowings against houses, why do we not do so for other borrowings? There are as many potential scams and criticisms when people borrow money for their businesses. Where do we draw the line as regards personal borrowings, other than small consumer borrowing?
I was amazed to find that, under the Government's proposals, providers would somehow be responsible for advice. When an adviser is giving advice—whether it is on buying financial assets, taking out a mortgage or taking out an insurance policy—it is, broadly, all the same thing. It is a question of whether that adviser is giving the best advice to his client or clients in relation to financial products. We have chaos now, in that an adviser is regulated under the Bill in relation to assets, but has a completely different regime in relation to insurance. There was chaos left from the old regime, before insurance comes under the new regime, while mortgages are not regulated at all.
Speaking from personal experience when I was given mortgage advice, both times it was unsatisfactory and a waste of money, and I could have done better myself. Mortgage advice needs some form of effective regulation. When we debated the issue in Committee, I recollect making the point—in an echo of the seminar that the Treasury had put on—that we wanted effective regulation. Whether it was to be voluntary or compulsory, it needed to work. Although so far voluntary regulation has been

ineffective, the Treasury officials seemed to be saying that there was a better chance of getting effective voluntary regulation than compulsory regulation.
8.30 pm
I do not pretend to know the answer, but what we have now does not strike me as especially satisfactory. The product is regulated, but not the advice, and the regulation will not start for some time. Life will be more confusing for the consumer buyers of mortgages than it is at present. I agree with the comment that it is an extraordinary way to give birth to the process, because it has not been debated in Parliament or even announced. It has taken place outside the democratic process, and we now have a package of measures that most hon. Members probably do not understand at all.

Mr. Cousins: I commend the Government on the measures they have taken to bring mortgages under some kind of regulation. That is long overdue and could not have been done under the previous legislation. The Government clearly signalled that they wished to consult widely on the procedure, and that consultation produced a clear and emphatic result. The Council of Mortgage Lenders began by resisting the idea of mortgage regulation, but now accepts and indeed advocates it, following the consultation. That reflects the real progress that the Government's approach to the issue has brought.
I also have to say that the House is indebted to the hon. Member for Twickenham (Dr. Cable) for tabling the amendment, because it enables us to consider the issue of mortgage advice. Without repeating what was said by the hon. Member for Arundel and South Downs (Mr. Flight), I suggest that it would not be true to say that mortgage advice is one of our best regulated professions. That constitutes a real difficulty. We are not dealing with a function that is already well patrolled and policed by a professional organisation. If advice and, in some respects, packaging advice—linking to mortgages to other products—were not regulated by the FSA, we would end up with a very complicated situation.
In particular, the mortgage provider, whom the Government intend to regulate, would be in a difficult position. The mortgage provider may have a client who is already committed to a course of action that has been urged by the mortgage adviser and which the mortgage provider may find difficult to resist. None the less, as matters stand, it is the mortgage provider who will carry the responsibility for the failure of the advice, not the adviser.
I urge my hon. Friend the Minister to consider how the issue might be further clarified. The Government have done so well on the issue and it would be a shame not to have a system that was fully organised and protected, and robustly and adequately regulated. In other respects, the Government have done splendidly in bringing an important area of concern properly under control.

Miss Melanie Johnson: The comments made by hon. Members this evening about mortgages have ranged widely on the basis of the amendment, but I am happy to answer the points that have been made. The amendment is specific; it covers the same ground as paragraph 23 of schedule 2, which is the provision in the Bill—it was there when we discussed the issue in Committee—that enables


regulation to take place by means of statutory instrument. Further debate will obviously take place when such an instrument is introduced.
The original day for debate on this part of the Bill was two weeks ago, which would have been shortly after I had made the announcement. Because of various parliamentary eventualities, a little time has passed and we have been able to discuss the issue now, which has been beneficial.
Virtually all residential mortgages will be covered by the FSA, and all first charge mortgages will be covered by FSA regulation, regardless of the value of those mortgages. The only provision that is separately covered—in this respect, we are subject to other legislation that we are not here to debate—will be second charge mortgages or mortgages for such things as double glazing.
Hon. Members have raised the issue of mortgage advice. In considering mortgage regulation, we have tried to address the detriment that consumers were experiencing in dealing with the mortgage market and which was reported to us as a result of the consultation. That detriment was mainly based on bad and misleading information, including hidden charges and surprise small print, which consumers needed a fine-toothed comb to discover. Consumers received many unpleasant surprises from the mortgage deals that they had been sold. We sought to address those issues because consumers are still experiencing those difficulties. It is important, following such a consultation, to address the problems that it found, and that is what we are doing.
The issue of advice has exercised people somewhat. It is important to realise that because endowment mortgages are investments, advice about them has always been covered by regulation and will continue to be covered. All mortgages that are to be repaid by means of endowments as investment vehicles will be regulated, as has been the case for some time. The FSA has recently taken a number of steps on the selling of endowment mortgages, and many providers have decided to pull out of the endowment market. There have been a number of such announcements.
Advice is a technical term in this context. It is not like popping into the estate agent's and asking whether it has a number of different mortgages. We are talking about someone who will go through an applicant's entire financial circumstances. It may take an hour or more to do and will require the applicant to produce background information such as bank statements, pay slips and other evidence of his financial circumstances. People divulge such information in considerable detail. Those who are technically giving advice can then match up the applicant's financial circumstances to a range of products available in the market. That is the process of advice giving. We are not talking about the more casual advice that we all receive from different people just by exchanging a few words with somebody under particular circumstances.
I decided not to regulate mortgage advice because that was not the problem that people were identifying. Nor do I think, in the light of the regulation that we have chosen, that it will be necessary in many cases for people to resort

to such advice. If they are buying endowment products or going for any investment vehicle, they will have to get advice, and that advice will be subject to regulation.
The hon. Member for Twickenham (Dr. Cable) mentioned redemption penalties. Details of those will have to be set out very clearly in the information available to consumers. We are regulating the form of information that consumers receive, so that they can compare one lender's offer with another or compare the products that they are being offered. They will be able see very clearly what the terms, conditions and repayments of a mortgage are, and can compare products for themselves using the simple and comprehensive information that they will receive as a result of the regulation.
The possibility of certain things coming as a surprise will no longer exist. That will be the result of the FSA's regulation of the information. Redemption penalties will be outlawed as part of the CAT standard regime. If someone buys a CAT standard mortgage, they will know that no such penalties will apply.

Mr. Flight: Does the Minister not agree that quite aside from the issues that she describes, when people take out a mortgage there are some crucial matters on which they need advice, analogous to buying a unit trust? For example, depending on the future course of interest rates, taking out a fixed-rate or floating-rate mortgage will make a huge difference to one's net wealth and position. Many people will not know what is likely to be appropriate to their circumstances or what can be expected of interest rates in the future.
Secondly, even with very standard mortgages, the difference in charges in the market varies considerably, depending on whether particular lenders want to lend or not. Therefore, people get advice on where they can get the best deal on a seven-year fixed mortgage. There is a growing market for advice, partly because of the complexity of mortgages. The Minister says that she has not had feedback—

Mr. Deputy Speaker (Mr. Michael Lord): Order. Is the hon. Gentleman making a speech or an intervention? He has probably said about enough.

Miss Johnson: I was lulled into listening to the hon. Gentleman as if he were making a speech. I was interested in his comments.
Were people to receive advice in the sense referred to by the hon. Gentleman, the only way in which it could be regulated is if the person giving the advice went through extensive financial examination of their affairs. Otherwise, advice which is not really advice in this technical sense would not be subject to regulation, nor could it be. How could one judge whether advice was good if it was not based on evidence of an individual's financial circumstances? That is why I felt that it was not the right course to take. People wanting a full inquiry can of course take advice in that sense. It will be regulated in the same way that advice on endowments is regulated. If one is simply popping in to ask for information, there cannot sensibly be any regulation.
We have decided to regulate lenders, who will be responsible for making sure that brokers comply with regulations about information and behave as if they, like the lenders, were regulated by the FSA.

Mr. Cousins: May I urge the Minister to bear in mind the fact that the mortgage market contains a bewildering range of products that are simply mortgages? There are mortgages calculated daily, flexible mortgages, fixed-rate mortgages, mortgages with different redemption penalties and many more. There is an established market for advising and directing people who may be not terribly sophisticated or new to the market. Those different products have quite different effects on people's income, and they take that income at different points in people's lives, which is crucial to many low-income families purchasing a mortgage for the first time. I urge my hon. Friend to reflect on the position, considering whether the heavy bias—

Mr. Deputy Speaker: Order. Long interventions seem to be becoming contagious.

Miss Johnson: Hon. Members are much enticed by this, Mr. Deputy Speaker. I have already reflected on the matter at length and found that there is a problem with the information that people receive rather than with advice, except in the case of endowments for which advice is regulated already. That is why we chose the route in the Bill. I accept that many mortgage products are available—between 4,500 and 5,000, in fact—but consumers cannot make comparisons between them because the information available is not standardised. Nor is it clearly set out in terms that people may readily understand. For that reason, we have decided to regulate the form of information provided and the conduct of lenders and, through lenders, brokers. We believe that that will deal with the detrimental effects that consumers experience in today's mortgage market.
I reiterate that amendment No. 444 covers the same ground as paragraph 23 of schedule 2. The action that we have decided to take will protect consumers, and I look forward to discussing the matter further when we produce a statutory instrument.

Dr. Cable: I thank hon. Members on both sides of the House for the depth and experience that they have brought to the debate. I agree with the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) that we should not lose sight of the central point, which is that we are on the threshold of mortgage regulation. That is a positive development. We are arguing about the way in which it is being done, but the central point is that it is happening.
I was glad to hear the Minister accept that the legislative process had not yet thrown up a proper scrutiny process. I look forward to debating the statutory instrument. I hope that that debate will be held soon and will be well signalled so that it may have the promised substance.
In long and eloquent interventions, it has been made clear that there is continuing concern about advice. I have gained the impression that representative bodies in the field—the Consumers Association and the National Consumer Council—remain concerned, although I do not know what evidence they gave to the public inquiry. In retrospect, they feel that the exclusion of advice considerably weakens the Government's proposals for regulation. I look forward to the continuation of that debate.
The Minister mentioned CAT standards. Such benchmarking of complex products is useful, but much of the Government's policy hinges on the fact that CAT marking should be an accepted and understood convention, not only for the products we are discussing but for utilities products and for pensions, when they are introduced. However, many products that are not CAT-marked will continue to be sold and will contain serious defects.
I realise that the amendment does not address the problems about advice that have been thrown up by the debate. The amendment's scope is narrow and I shall not push it to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 3

EEA PASSPORT RIGHTS

Amendments made: No. 158, in page 208, line 3, leave out
of his home state regulator
and insert—
in which he has his head office
No. 159, in page 210, line 2, leave out "13 or 14" and insert "12".
No. 160, in page 210, line 5, after "branch" insert—
(if it satisfies the establishment conditions)
No. 161, in page 210, line 6, after "Kingdom" insert—
(if it satisfies the service conditions)
No. 162, in page 210, line 9, at end insert—
( ) Sections 21, 39(1) and 147(1) of the Consumer Credit Act 1974 (business requiring a licence under that Act) do not apply in relation to the carrying on of a permitted activity which is Consumer Credit Act business by a firm which qualifies for authorisation as a result of paragraph 12, unless the Director General of Fair Trading has exercised the power conferred on him by section 177 in relation to the firm.
( ) 'Consumer Credit Act business' has the same meaning as in section 177.".
No. 163, in page 210, line 15, leave out from beginning to "change" and insert—
make provision as to any".
No. 164, in page 210, line 17, after "Kingdom" insert—
and as to the procedure to be followed in relation to such cases".
No. 165, in page 210, line 34, at end insert—
( ) The activities identified in a notice of intention may include activities which are not regulated activities.".
No. 166, in page 211, line 27, leave out "providing services" and insert "conducting business".
No. 167, in page 211, line 46, at end insert—
( ) The activities identified in a notice of intention may include activities which are not regulated activities.".
No. 168, in page 212, line 28, leave out from beginning to "change" and insert—
make provision as to any".
No. 169, in page 212, line 30, after "on" insert—
and as to the procedure to be followed in relation to such cases".


No. 170, in page 212, line 36, at end insert—
.—(1) Sub-paragraph (2) applies if a UK firm—

(a) has a Part IV permission; and
(b) is exercising an EEA right to carry on any Consumer Credit Act business in an EEA State other than the United Kingdom.

(2) The Authority may exercise its power under section 40 in respect of the firm if the Director of Fair Trading has informed the Authority that—

(a) the firm,
(b) any of the firm's employees, agents or associates (whether past or present), or
(c) if the firm is a body corporate, a controller of the firm or an associate of such a controller,

has done any of the things specified in paragraphs (a) to (d) of section 25(2) of the Consumer Credit Act 1974.
(3) 'Associate', 'Consumer Credit Act business' and 'controller' have the same meaning as in section 177.
.—(1) Sub-paragraph (2) applies if a UK firm—

(a) is not required to have a Part IV permission in relation to the business which it is carrying on; and
(b) is exercising the right conferred by Article 18.2 of the second banking co-ordination directive to carry on that business in an EEA State other than the United Kingdom.

(2) If requested to do so by the host state regulator in the EEA State in which the UK firm's business is being carried on, the Authority may impose any requirement in relation to the firm which it could impose if—

(a) the firm had a Part IV permission in relation to the business which it is carrying on; and
(b) the Authority was entitled to exercise its power under that Part to vary that permission.".—[Miss Melanie Johnson.]

Schedule 5

PERSONS CONCERNED IN COLLECTIVE INVESTMENT SCHEMES

Amendments made: No. 171, in page 214, line 20, leave out from "scheme" to end of line 21 and insert "is an authorised person".
No. 172, in page 214, line 23, leave out "operator of an".
No. 173, in page 214, line 23, leave out "qualifies for authorisation" and insert "is an authorised person".
No. 174, in page 214, line 25, leave out sub-paragraph (4).
No. 175, in page 214, line 28, leave out from "person" to "paragraph" and insert—
authorised as a result of".
No. 176, in page 214, line 30, after "activity," insert—
appropriate to the capacity in which he acts".
No. 177, in page 214, line 33, leave out from "person" to "paragraph" and insert—
authorised as a result of'.
No. 442, in page 214, line 38, leave out from beginning to end of line 41.—[Miss Melanie Johnson.]

Schedule 6

QUALIFYING CONDITIONS

Amendments made: No. 178, in page 215, line 5, leave out paragraph 1.
No. 179, in page 215, line 9, leave out from "If' to "or" in line 11, and insert—
the regulated activity concerned is the effecting or carrying out of insurance contracts, the authorised person must be a body corporate, a registered friendly society".—[Miss Melanie Johnson.]

Schedule 7

TRANSFER OF FUNCTIONS UNDER PART VI

Amendment made: No. 443, in page 218, line 23, leave out "enactment" and insert—
primary or subordinate legislation (including any provision of, or made under, this Act)".—[Miss Melanie Johnson.]

Schedule 14

THE OMBUDSMAN SCHEME

Amendments made: No. 180, in page 234, line 37, leave out
received or anticipated from fees
and insert—
of the scheme operator arising or expected to arise from the operation of the scheme".
No. 181, in page 237, line 11, at end insert—
( ) The standard terms may, in particular—

(a) require the making of payments to the scheme operator by participants in the scheme of such amounts, and at such times, as may be determined by the scheme operator;
(b) make provision as to the award of costs on the determination of a complaint.".—[Miss Melanie Johnson.]

Schedule 15

MUTUALS

Dr. Cable: I beg to move amendment No. 1, in page 239, line 5 at end insert—
7A. In section 13 (control of subsidiaries and other bodies corporate),—

(a) in subsection (2)(a) for 'of the activities specified in Schedule 7 to this Act' substitute 'activities authorised by the Commission'; and
(b) omit subsection (8).

7B. In section 52 (applications to court), in subsection (2)(d) for `mentioned in Schedule 7 to' substitute 'authorised by virtue of section 13(2)(a) of'.
7C. Omit Schedule 7 (activities which may be carried on by a subsidiary of or body jointly controlled by an incorporated friendly society).".

Mr. Deputy Speaker: With this it will be convenient to discuss the following amendments: No. 2, in schedule 17, page 241, line 24, column 3, at beginning insert "Section 13 (8).".
No. 3, in page 241, line 24, column 3, at end insert "Schedule 7.".

Dr. Cable: The amendment can be dealt with in seconds rather than minutes. It is a probing amendment, which reflects the interest in the problems of friendly societies expressed at an earlier stage of the Bill's progress by my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir R. Smith). He is on


paternity leave and cannot speak to the amendment this evening. [Interruption.] I seem to have triggered some interest in that issue.
Friendly societies are distinctive financial institutions; they are mutually owned and non-profit-making. We must be sensitive to the impact of regulation on such institutions. As my hon. Friend pointed out, many of them are small, thus the regulatory costs would be disproportionately high.
The purpose of the amendment is to ask the Government whether, while tidying up the schedule and bringing together earlier legislation on friendly societies, they have properly consulted the societies. Does the measure give friendly societies sufficient scope to develop their business and maintain an expanding part of the financial sector? Could the measure be technically improved by the inclusion of these small, technical amendments?

Mr. Flight: I support the amendment. Friendly societies are governed by the Friendly Societies Act 1992—schedule 7 of which sets out what business they can undertake. To change that, they must submit to the cumbersome mechanism of going to the Friendly Society Commission and the Treasury and then obtaining a statutory instrument. They have found problems in changing their activities according to circumstances. They will now be regulated by the FSA.
The Minister told us that the Government intend to repeal schedule 7 of the 1992 Act and there has already been movement in relation to the insurance activities of friendly societies. There can be no argument against getting rid of schedule 7, so that the activities of the societies can be governed by their FSA regulator.

Miss Melanie Johnson: As hon. Members will be aware—especially those who were members of the Standing Committee—the Government tries hard to please all Members. On this occasion, I trust that we shall succeed. Broadly speaking, I agree with the probing amendments tabled by the hon. Member for Twickenham (Dr. Cable).
I confirm that we intend not only to repeal schedule 7 of the Friendly Societies Act 1992, but to amend section 13 of the Act. Together, those provisions limit the purposes for which subsidiaries and jointly controlled bodies of an incorporated friendly society may exist.
The supervisory functions of the Friendly Societies Commission under the 1992 Act will be replaced by the functions of the FSA under the Bill. The commission's other functions will, for the most part, be transferred to the FSA. After the proposed repeal of schedule 7 and the necessary amendment of section 13, the FSA will impose any future restrictions to the extent necessary to protect the interests of policyholders of the friendly societies concerned.
I very much hope that the change to the regulatory regime for incorporated friendly societies will enhance their ability to provide services to the community, and I am sure that everyone hopes for that. We intend appropriate drafting to be inserted into schedules 15 and 17 when we are in a position to make the changes to which I have just referred. I hope that the hon. Member

for Twickenham will not press his amendment, because I assure him that the Government will introduce changes to meet the point that he has made.

Dr. Cable: I thank the hon. Member for Arundel and South Downs (Mr. Flight) for his brief but clear support and the Minister for her constructive answer. I hope that it produces a happy outcome. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 16

MINOR AND CONSEQUENTIAL AMENDMENTS

Amendment made: No. 182, in page 240, line 14, at end insert—

The Income and Corporation Taxes Act 1988 (c. 1)

.—(1) The Income and Corporation Taxes Act 1988 is amended as follows.

(2) In section 76 (expenses of management: insurance companies), in subsection (8), omit the definitions of—

"the 1986 Act";
"authorised person";
"investment business";
"investor";
"investor protection scheme";
"prescribed"; and
"recognised self-regulating organisation".

(3) In section 468 (authorised unit trusts), in subsections (6) and (8), for "78 of the Financial Services Act 1986" substitute "217 of the Financial Services and Markets Act 2000".

(4) In section 469(7) (other unit trust schemes), for "Financial Services Act 1986" substitute "Financial Services and Markets Act 2000".

(5) In subsection (1) of section 632 (establishment of personal pension schemes)—

(a) in paragraph (a), for the words from "authorised" to "business" substitute "an authorised person for the purposes of the Financial Services and Markets Act 2000 and who has permission under that Act to carry on a regulated activity";
(b) for paragraph (aa) substitute— 
"(aa) an authorised person for the purposes of the Financial Services and Markets Act 2000 having permission under Schedule 3 to that Act to carry on a regulated activity consisting of long-term insurance business (within the meaning of that Act);"
(c) in paragraph (c), for "authorised under the Banking Act 1987" substitute "which is an authorised person for the purposes of the Financial Services and Markets Act 2000 having permission under Part IV of that Act to carry on a regulated activity consisting of accepting deposits";
(d) in paragraph (cc), for "authorised under the Banking Act 1987" substitute "of a kind mentioned in paragraph (c)";
(e) for paragraph (e), substitute—
"(e) an EEA firm falling within paragraph 5(b) or (c) of Schedule 3 to the Financial Services and Markets Act 2000 lawfully carrying on in the United Kingdom any activity falling within item 1, 7 or 11 of the annex to the second banking co-ordination directive (as defined by that Schedule);"

(6) In subsection (2) of that section—

(a) for "business" substitute "regulated activity"; and
(b) in paragraph (b), for "78(1) of the Financial Services Act 1986" substitute "217 of the Financial Services and Markets Act 2000".

(7) Omit subsections (2ZA) and (2B) of that section.

(8) In section 728 (information in relation to transfers of securities), in subsection (7)(a), for "Financial Services Act 1986" substitute "Financial Services and Markets Act 2000".

(9) In section 840A (meaning of "bank")—

(a) in subsection (1), for paragraphs (b) and (c) substitute—
"(b) an institution which is an authorised person for the purposes of the Financial Services and Markets Act 2000 having permission under Part IV of that Act to carry on a regulated activity consisting of accepting deposits;
(c) an EEA firm falling within paragraph 5(b) of Schedule 3 to the Financial Services and Markets Act 2000 which satisfies the establishment conditions and qualifies for authorisation under that Schedule;"; and
(b) omit subsection (2).

(10) In section 841(3) (power to apply certain provisions of the Tax Acts to recognised investment exchange), for "Financial Services Act 1986" substitute "Financial Services and Markets Act 2000".

The Finance Act 1991 (c. 31)

.—(1) The Finance Act 1991 is amended as follows.

(2) In section 47 (investor protection schemes), omit subsections (1), (2) and (4).

(3) In section 116 (investment exchanges and clearing houses: stamp duty), in subsection (4)(b), for "Financial Services Act 1986" substitute "Financial Services and Markets Act 2000".".—[Miss Melanie Johnson.]

Schedule 17

REPEALS

Amendment made: No. 183, in page 241, line 23, at end insert—


"1988 c. 1.
The Income and
Corporaion Taxes Act 1998.
In section 76, in subsection (8), the definitions of "the 1986 Act", "authorised person", "investment business", "investor", "investor protection scheme", "prescribed" and "recognised self— regulating organisation".




In section 632, subsections (2ZA) and (2B).




Section 840A(2).


1991 c. 31.
The Finance Act 1991.
In section 47, subsections (1), (2) and (4).".

—[Miss Melanie Johnson.]

Bill, as amended, to be reported.

Order for Third Reading read.

The Chief Secretary to the Treasury (Mr. Andrew Smith): I beg to move, That the Bill be now read the Third time.
First, I pay a warm tribute to all those who have contributed to our debates. In particular, I thank all the members of the Standing Committee who worked long and hard through 35 sittings and for 90 hours or so—to say nothing of the three further sittings on the Floor of the House—properly to scrutinise the Bill and to make many improvements. The work of Lord Burns and his committee and of Don Cruickshank has also helped to improve the Bill. I am grateful to them for all their hard work.
I take this opportunity to thank especially my hon. Friends the Economic Secretary and the Financial Secretary for their enormous contribution. Theirs is real achievement and something of which they can be proud. I know that, even when it might not have seemed like it, it was truly a labour of love. I therefore extend thanks to them and to their predecessors. I am also grateful to our officials, to their colleagues in the FSA and to parliamentary counsel without whose skill and dedication a Bill of this size could simply not have been prepared and carried forward.
The reason for the extent of those labours is the importance, the scope and the inevitable technical complexity of such a Bill. I do not believe that there are real differences of opinion in the House or outside on the underlying objectives of modernising the regulation of financial services. We therefore very much welcomed the co-operation of the Opposition parties in using the innovative roll-over procedure last autumn and the other ways to progress the Bill. That will allow us, I hope, to get a fully scrutinised Bill on to the statute book in the spring. That is in the interests of everybody concerned.
As the right hon. Member for Wells (Mr. HeathcoatAmory) said on Second Reading, the importance of the Bill is undoubted. Its purpose is to put into place modern and effective regulation for one of our most important industries. Financial services account for 7 per cent. of gross domestic product and contribute £32 billion net to the balance of payments. The United Kingdom's world-beating financial services industry is vital not only because it employs more than a million people, but because it provides a means to look after the savings of many millions more. Firms in all sectors of the economy rely crucially on it for the provision of finance.
The Government inherited a regulatory system that could, perhaps, be most tactfully described as complex and interesting—if one likes that kind of thing. We are replacing that with something much better. In place of the outdated multiplicity of regulators, we shall have a single statutory, accountable regulator.
The FSA will have clear objectives and the right balance of powers and duties to provide, as we have said, a light touch where possible and effective consumer protection where necessary. It will be required and expected to operate in a way that is fair, transparent and accessible.
Important improvements have been made in the House to many aspects of the Bill; for example, the new market abuse regime, which was discussed earlier this evening, and the competition provisions, helping to protect the integrity and effectiveness of markets. Important clarifications and safeguards have been added in those and other areas. In addition, of course, many more technical improvements have been made with the support of both sides of the House.
The Bill will go to another place with its general framework in the shape in which I hope and expect it to emerge. Inevitably with a Bill of this nature, further refinements will be needed; for example, in additional technical improvements and transitional provisions. We shall also bring forward, as promised, changes to part VI, as a consequence of the developments in the stock exchange, which occurred after the Bill was introduced.

Mr. Tyrie: It is absolutely clear that the other place will have to put in transitional arrangements and repeals. The Chief Secretary has made it clear that he wants to get the Bill on the statute book as early as possible in April, so why was it not possible to make those amendments before the Bill goes to the other place?

Mr. Smith: There is a simple, commonsense reason for that. It makes sense to put in place the architecture and design of the new building before one handles all the arrangements for moving in, and that is the logical reason why many transitional provisions will be made later. As I said, demutualisation of the stock exchange has occurred since the Bill was introduced.
It is right at this stage to thank all those responsible for the important work of pre-legislative scrutiny carried out by Members of both Houses under the chairmanship of Lord Burns. That is a further aspect of the modernisation of procedures from which the Bill has undoubtedly benefited. The hon. Member for Arundel and South Downs (Mr. Flight) is on the record as saying that the Joint Committee virtually rewrote the Bill. That may be an exaggeration, but there is no doubt that it made a vital contribution in the form of several important recommendations on the draft Bill, the great majority of which we accepted and implemented prior to the Bill's introduction or during its passage through the House.
The Joint Committee proceedings laid the foundations for the co-operative scrutiny of this far-reaching, technical Bill in the House. The discussions have, at least until tonight, engaged many hon. Members, but we have exhausted the interest even of some of the more assiduous Conservative Members, as is evident from the sparse attendance.
For the overwhelming majority of the time there has been a constructive approach to the Bill, and I trust that it will continue in another place. It is clearly important that it should since we must all do what we can to get right this important legislation, while avoiding unnecessary delay in its enactment. I am glad that the right hon. Member for Wells acknowledged that point on Second Reading and on several subsequent occasions.
A couple of weeks ago, I had the pleasure of visiting the FSA with the Chancellor of the Exchequer, and we were both very impressed by what Howard Davies and his colleagues have already achieved. I have no doubt whatever that they are putting in place a world-class regulator for a world-beating industry. The Bill will give them a statutory framework to match, and I commend it to the House.

Mr. David Heathcoat-Amory: The Bill is nearing the end of its long passage through the House. It has been something of a parliamentary epic, and I can claim to be a founder member of the club, together with my

hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton). He was in at the start, and I am glad that he is in at the finish.
The origins of the Bill go back to the weeks following the general election, when the Government announced their intention to legislate for a new, unified regulator to oversee financial services and banking. I am not sure that the Government understood what they were taking on in those days.
There have been many changes, many of them good, but the process has not been helped by the fact that there have been so many ministerial changes. That is no criticism of the industry and commitment of the Economic and Financial Secretaries, but there have been three complete changes of the ministerial team, which has undoubtedly caused a hiccup from time to time.
For our part, we have been constructive throughout in our criticism. We want a Bill that will be effective in regulating an important industry, while being fair in its procedures and just towards those accused of financial crimes. The problem has been that the more we scrutinise the Bill, the more misgivings we have, despite the fact that the Government have moved on a number of issues. I acknowledged that several times this evening.
Many of the difficulties are in the wording and the detail of the clauses. Matters are not helped by the fact that much of the Bill remains submerged. It will become apparent in secondary legislation, which we have not seen, even in draft form.
We have been more or less alone in carrying out our scrutiny task. It is flattering that we now have a Liberal Democrat with us—the hon. Member for Weston-super—Mare (Mr. Cotter), whose constituency is in my county, Somerset, is always welcome, as an observer if nothing else. We would have appreciated a more active role from that party during the long days and evenings last year when we were considering the Bill clause by clause. The silence of the Liberal Democrats, who were entirely absent from most of the Committee stage, will have been noticed by the trade bodies concerned and by the million or so people who are directly employed in that important industry.

Mr. Brian Cotter: On behalf of my hon. Friend the Member for Twickenham (Dr. Cable), may I say that, as the right hon. Gentleman knows, we targeted our efforts on certain issues? I pay tribute to my hon. Friend's work in that respect.

Mr. Heathcoat-Amory: The Liberal Democrats were certainly economical with their targeting, and the effort of intervening on Report clearly exhausted the hon. Member for Twickenham (Dr. Cable), who has left the Chamber.
We should try, even at this stage, to make improvements to the Bill. It still has to go to another place. As we have emphasised repeatedly, the financial services industry is not only extremely important and successful, but highly mobile. The City is under almost ceaseless attack. The competition in world markets is pitiless and continuing. A regulatory system in this country must respect that. While it must be effective, it must avoid imposing excessive costs. Whenever possible, it should promote competition at home and competitiveness in world markets. If it fails to do that, the economy will suffer a great deal of industrial damage, and


consumers will also suffer. An industry that is driven to Dublin or Frankfurt may be subjected to a lower regulatory standard. Consequently, jobs could be lost and the general standard of regulation could suffer.
It has been observed that over-regulation leads to concentration of an industry by driving out small firms. Regulations are big business friendly because they raise the threshold of entry. Small businesses suffer. If a concentration occurs, further regulation is needed, and thus the ratchet effect increases constantly.
It is important that the authority's procedures are fair and can, if necessary, be challenged in court. There is a huge concentration of power in the authority. It combines rule making, investigating, disciplinary action and fining. Fines can be unlimited, and people can be deprived of their livelihoods. Failure of the procedures would lead to injustice in a domestic context, and the authority could also be torpedoed by the European convention on human rights.
I retain many doubts about whether the proposed statutory immunity will survive in the long term. If the authority acts negligently or incompetently and severely damages an individual or a firm, its action may breach the European convention on human rights if the person or firm is denied access to the courts to seek restitution. Statutory immunity is therefore vulnerable.
If the authority is torpedoed, the consequences could be serious. They could jeopardise, at least in the short term, the whole regulatory structure and render ineffective the powers that the FSA needs to ensure fair trading. We responded constructively to that by pressing the Government to accept the recommendation of the Burns committee that the complaints investigator should not only be genuinely independent but able to recommend financial awards against the authority when it acts wrongly. I regret that the Government have rejected that suggestion.
Instead of accepting our amendment to elevate the importance of competition, the Government followed a highly bureaucratic route of bringing in the Office of Fair Trading, which will report to the Competition Commission, which will report to the Treasury, which will alter the authority's rules. It would have been far better if the FSA's statutory objectives included supporting competition at home and competitiveness abroad.
The Government accepted some of our suggestions. The Bill is an improvement on the original measure, which was published in July 1998. However, the Government rejected our suggestions on too many subjects, and many matters remain outstanding. Time prevents me from listing them all, but I shall mention some of them.
We tried to improve the accountability of the FSA' s internal procedures by suggesting the appointment of a chief executive as well as a non-executive chairman. Its accountability would also be improved by enhancing the role of the non-executive members in line with good practice in the private sector. Again, the Government turned that down.
We also tried to ensure that the FSA is subject to regular independent reviews and that the existing rulebook—not only new rules—is subject to cost-benefit

analysis. That would have been some defence against the inevitable tendency of public bodies to expand over time and would at least have ensured that the cost base from which it operates would be subject to cost-benefit analysis. Again, we were turned down.
Territorial scope, the treatment of electronic trading and how products are offered over the internet—often across national boundaries—are complex issues. The Government seem to have adopted the precautionary approach of catching them all and exempting some by secondary legislation. That is unsatisfactory, particularly given the time that they have had to consider and consult. It would have been better had they set out a strategy—preferably one of home state supervision and regulation, which could be jeopardised if the Bill proceeds in its current form.
We have a better Bill, which is due largely to the efforts of those on the Benches behind me, but it is flawed in a number of fundamental respects. Let no one be in any doubt about that. We shall continue our efforts to improve it in the other place and the epic is not yet over.
9.16 pm

Mr. Barry Sheerman: I am intruding on the debate, although I was deputy chairman of the Burns inquiry. I got off after four months, with good behaviour. The time between spring and the end of summer was invigorating and interesting and it was fascinating to watch Lord Burns, the poacher turned gamekeeper.

Mr. James Plaskitt: That is why he has gone hunting.

Mr. Sheerman: Indeed. I wish Lord Burns well in the more difficult task on which he has embarked as a chairman.
The procedure for handling the Bill is of great constitutional importance. I am very interested in our constitutional processes, the background to which is constant sniping and criticism of the traditionally hasty passage of legislation through both Houses of Parliament. I enjoyed not only the long and interesting consultation that the Government took in hand, but the pre-legislative inquiry, which was totally new and set a precedent as it involved both Houses of Parliament. All who served on the Burns committee found that the peers—even some of the hereditaries, although one should not say that—assisted our deliberations and that their expertise improved the Bill.
What did we achieve? The pre-legislative inquiry made many sound and serious recommendations and I have been reading the Library report on how many were accepted over the past few days. A large number were agreed to and the Government have to be congratulated on being flexible and open to change. However, I still have one disagreement: the post of chairman and chief executive should be split in half. I say that honestly. It was a recommendation of the committee and I still think that there is something in it. I might have been tempted to vote for it, if the Opposition had had the courage to force a Division.
The process of consideration was interesting and should not be forgotten as it represents a way of dealing with complex legislation. The Bill is one of the most complex


that the House will have to consider and if that process was good for it, it must be good for other Bills. We should extend the method and the Commons and the Lords should work together to improve Bills. The Bill has to go through subsequent stages, and I think that it will be further refined. However, we already have a better Bill and we have discovered a process that works. We should not forget that. We should use it.
As with all Oppositions, the right hon. Member for Wells (Mr. Heathcoat-Amory) showed why a pre-legislative inquiry is better. We sat round a semi-circular table. We were not scoring points across the divide day after day. We collaborated as a team to improve the Bill, and we did. One problem is that, when we get into a confrontational position in the Chamber, both sides have to find something to fight over. Some of the amendments, and some of his comments, showed that the Opposition have had to find something to criticise in a fundamentally good Bill.
We must not forget the lessons that we have learned. We should use the process. I say to all my colleagues on both sides who participated in the early part of the Committee's deliberations that, although I escaped to do other duties in other Committees, I learned a great deal from them and enjoyed the process. We did something remarkable that we should be proud of, so let us remember.

Mr. Loughton: I am grateful to my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory). Some of us were present at what seems like the birth. Before that, the Bill was conceived in the Labour manifesto, of dodgy parentage. The first contractions were experienced in the draft Bill in July 1998, but there was no sense of urgency at that time. The patient was then rushed to hospital in serious need of help, and given over to the specialist, Lord Burns, in February 1999. On the face of it, the chief gynaecologist dealing with the Bill agreed with Dr. Burns's prognosis, but would not commit herself.
Despite that, there was a serious need for further opinions from consultation exercises. However, before the consultant's results even arrived on the scene, the patient was taken to the delivery ward and in July 1999 we had a new Bill altogether. No sooner had it arrived in the delivery ward, than the lead gynaecologist and the whole medical team were changed, replaced by rookies who were not privy to the patient's history, condition or entire medical records.
All that time, the patient was left in limbo, not knowing whether she was going to give birth, or to how many offspring. Contractions gathered pace between July and December of last year, although at times the new medical team seemed to have little understanding of what they were doing, which bits go where, who was responsible for what, and what will be produced, where and when.
Now, 18 months after the contractions started, the entire method of delivery is to be changed, and a straightforward single birth looks like becoming quadruplets all in the breach position. Members of the Government Front Bench are trying to perform an emergency caesarian, aware of all the time that has been wasted up till now.
My fear is that at least one of those quadruplets will appear with two large bolts attached either side of its neck. The nature of the beast that we are creating in the

FSA will prove to be a Frankenstein monster that will turn on the financial services industry, and the potentially destructive powers of its regulatory zeal will soon run out of control. I thought that was a rather better metaphor than the leviathan that we have mentioned so many times.
I had lunch today with a senior director of a financial services firm in the City, who echoed many similar comments that have been made in recent weeks. He said that despite everything that we have inserted in the Bill, the balance of the rights of the regulated person against the powers of the regulator to initiate investigation, impose regulations and penalties, and ultimately withdraw authorisation and destroy whole livelihoods, has been completely tilted in favour of the regulator.
There is a climate of fear in the City. Firms will take excessive investigation on the chin, and the ensuing penalties will be out of all proportion to the misdemeanour or ability of firms to do anything about a rogue trader or a rogue incident. The climate of fear is such that firms are afraid to raise any objections in case they are singled out for intensive scrutiny and never given the benefit of the doubt.
Despite all our attempted safeguards, that climate of fear, far from being dispelled, is potentially worsened by the unlimited fining ability and enormously increased powers. That is very worrying, coming from so many practitioners of long standing. The cost of this Frankenstein's monster is forecast in the new budget document, just released, to be £162.5 million next year, up from £154 million for this year, an increase of 5.5 per cent.—and that is before taking account of the likely cost of regulating mortgages and whatever else.
At the end of the day, what so many people from the Labour Benches never realise is that the consumer will pay the cost of extra legislation. The very people that we are here to protect will be paying excessive amounts of money for excessive regulation. That is our fear.
The problem with the Bill is the unparalleled conferment of regulatory authority on an autonomous body. It covers the whole financial services sector, and now, apparently, mortgages. It covers prudential and conduct-of-business aspects, and has very wide-ranging powers: authorisation, legislation, investigation, intervention and discipline. It must be accountable and inspire confidence, but quite patently, as our deliberations show, it does not.
The generality of the objectives is such that they are open to interpretation. There is insufficient regard to competition, despite the parallel Cruickshank report that we considered midway through Committee. There are insufficient checks on the FSA's doing its job properly, and it needs to be accountable to Parliament. Too much is governed by rules to be made under delegated legislation and not subject to parliamentary review.
Far too much in the Bill is left open-ended. The chairman-chief executive split—the hon. Member for Huddersfield (Mr. Sheerman) quite rightly mentioned it; it is a shame he was not here to mention it earlier—is another example of the lack of accountability by the FSA. When Howard Davies leaves in a few years' time, we shall be dealing with entirely different characters.
There is a lack of commitment in the Bill to regular reviews and a proper look at the cumulative effect of regulation in an international context. The whole Bill is completely lacking in detail. The statutory immunity is


not counterbalanced by independent investigation and a compensation scheme. The ultimate recourse of judicial review is impractical and just will not happen.
The extent of regulation is down to what the Treasury decides to specify at any given time. As my right hon. Friend mentioned, the lack of certainty under the market abuse clauses must surely in time be subject to the ECHR, articles 6 and 7. What is the role of the FSA with regard to systemic risk?
There is so much detail still to come at this late stage. Even today we have heard that there are no further details about the FSA's role as the competent authority. The mechanics of the excessively bureaucratic legal aid scheme, which is to be published, and the rebating of excess fees and fines we know nothing about. All this is so late in the day after such a long birth.
The Opposition want an FSA that is effective and streamlined and has clarity and transparency. We do not want a leviathan or a Frankenstein's monster which threatens the competitiveness, pre-eminence and international appeal of the whole financial services community, and for which ultimately the consumer will pay. This is a major lost opportunity in the Bill.
This is nanny—[HON. MEMBERS: "The hon. Gentleman does not mean that."] I mean it sincerely. This is nanny on an enormous scale. It is nanny with knuckledusters and expensive habits, and I therefore urge my hon. Friends to vote against the Bill.

Mr. Beard: For the four of us on these Benches who have seen the Bill through all its stages from the Burns committee, tonight has something of an end of term feeling. I am sure that all four of us would wish to associate ourselves with the remarks of my hon. Friend the Member for Huddersfield (Mr. Sheerman) on the constructive way in which the committee dealt with the matter and its value through all the subsequent stages.
The main emphasis of all the evidence in the pre-legislative scrutiny Joint Committee was from financial practitioners, concerned, as the hon. Member for East Worthing and Shoreham (Mr. Loughton) has been, that the Bill would enable the Financial Services Authority to bear down on them too severely. In Committee, virtually all the Opposition amendments were designed to increase accountability, to make it easier to pursue the FSA in the courts, to remove or limit its immunities, or to secure increased consultation and reasoned responses.
It is vital for the Bill to be fair, and not to provide so draconian a regime that financial services companies in London and the rest of the country would be at a disadvantage in international financial markets. It is also vital, however, for the financial services industry in Britain to have a reputation for integrity. People should be able to trust our financial practitioners, without any suspicion or reservation. That point has never been so strongly represented in debates as has the need to avoid regulatory cost, and the need to prevent the FSA from becoming a behemoth—or the leviathan referred to earlier—trampling innocent financiers underfoot.
As the Bill moves to another place where there are many distinguished financial service practitioners, there is a danger that the same emphasis is about to be

intensified—that there will be too much emphasis on accountability and restraint of the FSA, and that too little will be said about performance and effectiveness in the achievement of its objectives. I also feel some unease about the way in which so many strands of FSA accountability have been added to each other, without much debate about the total impact on the day-to-day effectiveness and flexibility of the organisation.
Let me briefly summarise the many dimensions of accountability that already exist in the Bill. The Treasury will appoint the board with a majority of non-executive directors, who will form a committee reviewing the economy and efficiency of the FSA. The executive directors will be subject to confirmatory hearings by a parliamentary Committee. An annual report will be published covering a prescribed list of topics, which will be reviewed by a parliamentary Committee. The Treasury may appoint investigators to inquire into whatever aspect of the FSA's work it wishes to be examined.
Two panels, one representing consumers and the other representing practitioners, must be consulted on various aspects of FSA practices and rule making, and their observations must be given reasoned answers. When guiding principles and codes of practice are to be established or subsequently amended there must be consultation with the relevant public, and responses must be made about why any observation has not been accepted. All FSA decisions are subject to appeal to a tribunal involving quasi-judicial proceedings, hearing cases from scratch, and there is to be an independent investigator of complaints.
If the other place piled on a few more accountabilities and introduced a few extra impediments to fast reaction in a spirit of giving misbehaving practitioners a sporting chance, the real fear would not be that a powerful unaccountable monster had been created and let loose. The real question would be whether the staff of the FSA would have any time, energy or motivation left to pursue dodgy dealers, financial fiddlers and insider traders.
It is reasonable that the accountability of such a powerful regulatory authority should be at the forefront of people's minds; but the FSA must have the ability and flexibility to achieve its primary objectives. That is vital to the future of the City and the financial markets, and to their international reputation for integrity and ethical dealing. Accountability and performance must be balanced. I hope that the FSA board, the Treasury and the parliamentary Committee will review that balance regularly as practical experience of the working of the Act is gained.

Mr. Tyrie: I agree with much of what the Chief Secretary said. Of course, we all want regulation: we want regulation that works. We all agree that the ultimate objective should be to protect the consumer, but we do not agree on how to achieve it. Conservative Members do not think that the Government have got it right, despite our best efforts to guide them in Committee.
The reason why that should be of concern to us is, as several hon. Members have pointed out this evening and on many other occasions, that we are creating a hugely powerful institution. It has the power to act as a legislator; it can make its own rules. It has the power to act as an executive; it implements its own rules. It has the power


to act as judge and jury. Within certain limits, it can even adjudicate on whether there have been any transgressions at all. It has at its head a man who has no one looking over his shoulder, a combined chief executive and chairman. That is the first and most important source of concern.
I thought that the best thing I could do this evening was to set out an agenda of the major issues that the other place needs to look at again—issues on which I feel that we have not had satisfactory answers, or where legislation is clearly still deficient. As I have said, we must split the role of chairman and chief executive. I hope that the other place comes back to that issue.
I do not think that it can be right that we are left in a position where the FSA can act recklessly and still be immune from a civil action. The FSA must have a duty to act fairly, reasonably and proportionately. It does not, as the Bill is drafted.
There is the whole issue of the practitioner panels. The industry must have more say as to the composition of the panels. It should not be left to the regulator to appoint the people who will give advice.
There is also the issue of reviews. It is extraordinary that the Government should have decided that they are not prepared to commit themselves to at least one thorough review of the Bill, in, say, three years. They want to retain the discretion not to have any review at all. That cannot be right.
There is the question of financial promotion from outside the UK, which is governed at the moment by the phrase:
capable of having an effect in the United Kingdom",
which is clearly far too stiff. We must go back to the principle that that sort of business promotion should be regulated if the intention is to direct the product at the UK. I notice that, after months of stonewalling in Committee, the Government are finally wavering on that. I hope that, in the other place, they will table an intelligent amendment on that point.
There is the question of market abuse, which we have discussed again tonight. I find it unacceptable that a firm may find itself guilty of market abuse, even if it had no intent and it can show that it had no intent to do so. Clearly, intent should be relevant in assessing the firm's guilt.
There is the issue of the FSA's powers of investigation. Those must be made subject to judicial review.
Today, we have discussed again the decisions of the ombudsman. His decisions should be binding on both parties—the firm and complainant—or on neither. They should both be permitted to go to judicial review. The imbalance, the asymmetry between the firm and the individual with respect to the ombudsman, is clearly unfair and may lead to a European Court of Human Rights review.
Finally in the list of 10 items as suggested prep for the other place to look at, there is the issue of mortgage regulation. It is true that the Liberal Democrats have scarcely been here during the whole of our lengthy scrutiny, but at least at the finish they came in with a couple of points about mortgage regulation, with which I thoroughly agree. I notice that one or two Labour Members also agree. The Government's approach, with

the lender heavily regulated and the adviser not regulated at all, is clearly in no one's interests, certainly not the consumer's.
Those are 10 major items that I want their Lordships to consider. However, the Bill contains one overriding weakness, which we have discussed time and again—competition and competitiveness—and which the Government have still not got right. They have not fully grasped the implications of the fact that the optimal level of regulation is not one that will produce zero misconduct; it must be one that maximises the consumer benefit.
To its credit, the FSA produced an interesting document—the most interesting of the great bundle that it has generated—entitled, "A new regulator for the new millennium". In it, the FSA appears to recognise exactly what we have been saying all these months. In fact, Howard Davies has gone a long way towards redefining the market confidence objective in a way that embraces consideration of our concerns. Page 6 of the document states that the FSA should aim for
as low an incidence of"—
market—
failure … as is consistent with the maintenance of competition and innovation".
Mr. Davies, of the FSA, says:
achieving a 'zero failure' is … undesirable … It would be likely to damage the economy as a whole".
The FSA acknowledges that eliminating the risk of regulatory failure would be unacceptably costly to the industry, the consumer and the economy.
The chairman of the FSA is right, but the balance that he is trying to strike in the document should have been in the Bill. With this document, the FSA is merely patching up the failures of this legislation. It is introducing an economic performance test—a competitiveness test—through the back door: through article 127, which is the cost benefit analysis clause. It is worth pausing to think through how the FSA should go about the process. I suggest to the authority and the Government a simple test; it is not perfect but it will be a good rule of thumb to enable a cost benefit analysis approach—which is clearly what Howard Davies is thinking of applying much more stringently than had originally been intended—to be applied so as to enable economic performance to be maximised. That will enable the delivery of the competitiveness objective.
I want the Government to ask the FSA to consider, before any regulation or rule is made or changed, whether the proposed regulatory change would shrink or enlarge the market. If it would enlarge it legitimately, it would almost certainly benefit the consumer. Of course, there are provisos, which I will not go into as I do not have time, but if that simple test is applied and forms the basis for cost benefit analysis we may be able to secure through the back door what the Government have so determinedly refused to allow through the front: adding a competitiveness or economic performance objective to clause 2.
What the chairman of the FSA has done is welcome. It fills a major gap in the Bill. However, we should not have had to rely on him to produce that document or to interpret the rules so creatively on such a crucial matter. We should have had in the Bill the trade-off that he is trying to address in the document. The fact that it has now


been produced and will have such an impact is a reflection of the enormous power that we are placing in his hands. If someone else were in charge who did not take such an enlightened view, we could be in a difficult situation—there could be a threat to the industry and the consumer, with the risk that economic performance would tail off and be eroded by regulation.
I have listed 10 major issues with which I want the other place to deal and have discussed an 11th at length. I have not touched on the many other financial and legal issues involved, which are in a thoroughly unsatisfactory state. The one comfort that I do take is that the other place is full of financial and, particularly, legal experts, and I am sure that they will do a very thorough job on the Bill.

Mr. Flight: This is the largest piece of legislation introduced by this Government. As described, it will affect 1 million people, our biggest industry and our biggest exporter. It is not exactly a red-hot sphere of party politics, but I think that the Government could be forced to accept that the Opposition's opposition has endeavoured to be constructive, to scrutinise the Bill in huge detail and to get it right—for the sake of our country, the industry and the people who work in that industry. I offer our thanks particularly to the lawyers who have advised us in our task, and who are sitting under the Gallery.
Although I am pleased to note that the Government have concurred on many of the issues that we have raised—that is largely why Report has taken so long—there are, as I said when we began our consideration, certain key points of principle that we wanted the Government to acknowledge and to put right. We feel that those principles continue to be fudged, which is undesirable for the legislation's success. My colleagues have dealt with those principles in our debates.
If a body as powerful as the FSA is to enjoy legal immunity, there will have to be, as Burns recommended, a clearly independent complaints procedure empowered to award recompense. The Government have come close to making such provision, but why will they not fully accept it?
The FSA's regulatory mandate should be to accept and to promote both domestic competition and international competitiveness. The Government have added their cumbersome machinery—including the Office of Fair Trading, the Competition Commission and the Treasury—but such an addition makes no sense unless the FSA is instructed up front that its regulatory activities are to be essentially pro-competition.
The FSA is a leviathan. It is the governor of a particularly large industry and is able to go forth without having to hold elections on its actions. It is surely right that its starting mandate should be to be reasonable, fair, open, accountable and proportionate. The Minister said that that is what the Bill says, but it does not—although the Opposition tried on several occasions to get it in there.
A body as large as the FSA surely should be subject to periodic independent reviews of its operation, efficiency, cost and cost-effectiveness.
On the chief executive, we have agreed with the Government that we should let Howard Davies sort out the issues. Thereafter, however, it must be right to follow the private sector's precedent of good practice by having a non-executive chairman and giving the non-executive board responsibilities analogous to those performed in the private sector.
It must be wrong to have a situation in which United Kingdom firms are damaged in their overseas business by attempted United Kingdom regulation. It must be completely wrong to pass legislation that the Government themselves have essentially accepted will damage our e-commerce.
The Bill has already been tremendously improved, but it will be further improved in the other place. Today, however, we shall be voting against it, to register the key points of principle that we have banged on about since we started consideration in Committee.

Miss Melanie Johnson: It is my great privilege to bring to a close the House's very extensive consideration of this necessarily very extensive Bill.
My right hon. Friend the Chief Secretary to the Treasury has already paid generous tribute to the work of the great many people, inside and outside the House, who have contributed to this work. I strongly endorse that tribute, as does my hon. Friend the Financial Secretary to the Treasury. We should like also to endorse the work of our predecessors and of the Burns committee.
This has been a model process of how to deal with important, but technically very complex, legislation. We have had extensive public consultation, followed by pre-legislative scrutiny of the most important aspects of the Bill, followed by constructive and co-operative line by line consideration. The Government would be the first to acknowledge that the Bill has been significantly improved at each point of the process. There is likely to be further scope for refinement in another place before the Bill returns to us for final consideration.
I have been much entertained by the speeches during the debate. I was pleased that my hon. Friend the Member for Huddersfield (Mr. Sheerman) felt able to rejoin the debate this evening, and I appreciate the contribution of my hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard) and other members of the Select Committee who have contributed positively to the Bill. I was much entertained also by our debates on fine targeting with the Liberal Democrats.
I was particularly entertained by the comments of the hon. Member for East Worthing and Shoreham (Mr. Loughton) and his heavily laboured analogy concerning the birth of the Bill. I was somewhat bemused, as one of the reasons why the Bill has had so many amendments—the hon. Member for Arundel and South Downs (Mr. Flight) did say this—is that it has been much improved, and some of the amendments have been in


response to points made by the Opposition. Some Opposition Members have dug themselves into opposition and kept digging, despite the fact that the Government have responded so positively to the many points that they raised.
The Bill will give the Financial Services Authority a coherent set of modern regulatory powers, and, as such, it constitutes a thorough and necessary overhaul of a relevant part of the statute book. The result will be to enable the FSA to operate as an effective, fair and accountable regulator. The reforms to be facilitated by the Bill are pro market confidence, pro consumer protection and pro consumer awareness. They are anti financial crime, anti-abuse and anti-malpractice. Scams, malpractice and market abuse will do nothing for a world-class industry, and consumers must be protected. That has been one of our overriding concerns, along with making sure that we have a first-class regulator.
One wonders why the Opposition are voting against the Bill, and what that will do for a world-class industry. The Bill is a prime example of the Government's aim to reform and modernise Britain. It responds to the changing face of the financial services industries, and it will bring a fair deal to those operating within one of our most successful industries, as well as to those who use and rely on financial services for their well-being and prosperity.
The industry is well regulated in the UK, and it has been maintained and secured. It is that success, the high standards and the high regard in which financial services in the UK are held around the globe, that the Bill seeks to maintain. The Bill is central to maintaining and enhancing that success. It will increase accountability, and it will have regard to competition. It will make sure that competition is at the heart of the consideration that the FSA gives to its work as a regulator. It will protect consumers.
Above all, the Bill will strike the right balance. It will provide light-touch regulation, and protection where necessary. It is a new regulator for a new millennium, and I trust that the House will support the Bill tonight.

Question put, That the Bill be now read the Third time:—

The House proceeded to a Division—

Mr. Deputy Speaker: I ask the Serjeant at Arms to investigate the delay in the No Lobby.

The House having divided: Ayes 340, Noes 128.

Division No. 70]
[9.54 pm


AYES


Ainger, Nick
Benton, Joe


Ainsworth, Robert (Cov'try NE)
Best, Harold


Alexander, Douglas
Betts, Clive


Allan, Richard
Blackman, Liz


Allen, Graham
Blears, Ms Hazel


Armstrong, Rt Hon Ms Hilary
Blizzard, Bob


Ashton, Joe
Boateng, Rt Hon Paul


Atkins, Charlotte
Borrow, David


Austin, John
Bradley, Keith (Withington)


Ballard, Jackie
Bradley, Peter (The Wrekin)


Barnes, Harry
Bradshaw, Ben


Barron, Kevin
Brake, Tom


Battle, John
Brinton, Mrs Helen


Beard, Nigel
Brown, Rt Hon Nick (Newcastle E)


Beckett, Rt Hon Mrs Margaret
Brown, Russell (Dumfries)


Benn, Rt Hon Tony (Chesterfield)
Browne, Desmond





Buck, Ms Karen
Gapes, Mike


Burden, Richard
Gardiner, Barry


Burgon, Colin
George, Andrew (St lves)


Burnett, John
George, Bruce (Walsall S)


Burstow, Paul
Gerrard, Neil


Butler, Mrs Christine
Gibson, Dr Ian


Byers, Rt Hon Stephen
Gilroy, Mrs Linda


Caborn, Rt Hon Richard
Godman, Dr Norman A


Campbell, Alan (Tynemouth)
Godsiff, Roger


Campbell, Ronnie (Blyth V)
Goggins, Paul


Campbell-Savours, Dale
Golding, Mrs Llin


Cann, Jamie
Gordon, Mrs Eileen


Caplin, Ivor
Griffiths, Jane (Reading E)


Casale, Roger
Griffiths, Nigel (Edinburgh S)


Cawsey, Ian
Griffiths, Win (Bridgend)


Chapman, Ben (Wirral S)
Grogan, John


Chaytor, David
Gunnell, John


Chisholm, Malcolm
Hain, Peter


Clark, Rt Hon Dr David (S Shields)
Hall, Mike (Weaver Vale)


Clark, Dr Lynda (Edinburgh Pentlands)
Hall, Patrick (Bedford)



Hamilton, Fabian (Leeds NE)


Clark, Paul (Gillingham)
Hancock, Mike


Clarke, Charles (Norwich S)
Hanson, David


Clarke, Eric (Midlothian)
Harman, Rt Hon Ms Harriet


Clarke, Rt Hon Tom (Coatbridge)
Heal, Mrs Sylvia


Clarke, Tony (Northampton S)
Healey, John


Clelland, David
Heath, David (Somerton & Frome)


Clwyd, Ann
Henderson, Doug (Newcastle N)


Coaker, Vernon
Henderson, Ivan (Harwich)


Coffey, Ms Ann
Hepburn, Stephen


Coleman, Iain
Heppell, John


Colman, Tony
Hesford, Stephen


Connarty, Michael
Hill, Keith


Cooper, Yvette
Hinchliffe, David


Corbett, Robin
Hodge, Ms Margaret


Corbyn, Jeremy
Hood, Jimmy


Corston, Jean
Hoon, Rt Hon Geoffrey


Cotter, Brian
Hope, Phil


Cousins, Jim
Hopkins, Kelvin


Cox, Tom
Howarth, George (Knowsley N)


Cranston, Ross
Howells, Dr Kim


Crausby, David
Hughes, Ms Beverley (Stretford)


Cryer, Mrs Ann (Keighley)
Hughes, Kevin (Doncaster N)


Cryer, John (Hornchurch)
Hughes, Simon (Southwark N)


Cummings, John
Humble, Mrs Joan


Darvill, Keith
Hurst, Alan


Davidson, Ian
Hutton, John


Davies, Rt Hon Denzil (Llanelli)
Iddon, Dr Brian


Davies, Geraint (Croydon C)
Jackson, Helen (Hillsborough)


Davis, Rt Hon Terry (B'ham Hodge H)
Jamieson, David



Jenkins, Brian


Dawson, Hilton
Johnson, Alan (Hull W & Hessle)


Dean, Mrs Janet
Johnson, Miss Melanie (Welwyn Hatfield)


Denham, John



Dobbin, Jim
Jones, Rt Hon Barry (Alyn)


Doran, Frank
Jones, Helen (Warrington N)


Dowd, Jim
Jones, Ms Jenny (Wolverh'ton SW)


Drew, David



Eagle, Angela (Wallasey)
Jones, Jon Owen (Cardiff C)


Eagle, Maria (L'pool Garston)
Jones, Dr Lynne (Selly Oak)


Edwards, Huw
Jones, Martyn (Clwyd S)


Ellman, Mrs Louise
Jowell, Rt Hon Ms Tessa


Ennis, Jeff
Kaufman, Rt Hon Gerald


Etherington, Bill
Keeble, Ms Sally


Fisher, Mark
Keen, Alan (Feltham & Heston)


Fitzpatrick, Jim
Keen, Ann (Brentford & Isleworth)


Fitzsimons, Lorna
Keetch, Paul


Flint, Caroline
Kemp, Fraser


Flynn, Paul
Kennedy, Jane (Wavertree)


Follett, Barbara
Khabra, Piara S


Foster, Rt Hon Derek
Kidney, David


Foster, Michael Jabez (Hastings)
Kilfoyle, Peter


Foster, Michael J (Worcester)
King, Andy (Rugby & Kenilworth)


Foulkes, George
Kumar, Dr Ashok


Fyfe, Maria
Lepper, David


Galloway, George
Leslie, Christopher






Levitt, Tom
Radice, Rt Hon Giles


Lewis, Ivan (Bury S)
Rammell, Bill


Lewis, Terry (Worsley)
Rapson, Syd


Liddell, Rt Hon Mrs Helen
Raynsford, Nick


Linton, Martin
Reed, Andrew (Loughborough)


Livsey, Richard
Reid, Rt Hon Dr John (Hamilton N)


Lloyd, Tony (Manchester C)
Rendel, David


Lock, David
Roche, Mrs Barbara


Love, Andrew
Rooker, Rt Hon Jeff


McAvoy, Thomas
Ross, Ernie (Dundee W)


McCabe, Steve
Ruane, Chris


McCafferty, Ms Chris
Ruddock, Joan


McCartney, Rt Hon Ian (Makerfield)
Russell, Bob (Colchester)



Russell, Ms Christine (Chester)


McDonagh, Siobhain
Ryan, Ms Joan


Macdonald, Calum
Salter, Martin


McDonnell, John
Sanders, Adrian


McIsaac, Shona
Sarwar, Mohammad


McKenna, Mrs Rosemary
Savidge, Malcolm


McNamara, Kevin
Sawford, Phil


McNulty, Tony
Sedgemore, Brian


MacShane, Denis
Shaw, Jonathan


Mactaggart, Fiona
Sheerman, Barry


McWalter, Tony
Sheldon, Rt Hon Robert


McWilliam, John
Shipley, Ms Debra


Mahon, Mrs Alice
Short, Rt Hon Clare


Mallaber, Judy
Simpson, Alan (Nottingham S)


Marsden, Gordon (Blackpool S)
Singh, Marsha


Marsden, Paul (Shrewsbury)
Skinner, Dennis


Marshall, David (Shettleston)
Smith, Rt Hon Andrew (Oxford E)


Marshall, Jim (Leicester S)
Smith, Angela (Basildon)


Marshall-Andrews, Robert
Smith, Miss Geraldine (Morecambe & Lunesdale)


Martlew, Eric



Maxton, John
Smith, Jacqui (Redditch)


Meacher, Rt Hon Michael
Smith, Llew (Blaenau Gwent)


Meale, Alan
Soley, Clive


Merron, Gillian
Spellar, John


Michie, Bill (Shefld Heeley)
Squire, Ms Rachel


Milburn, Rt Hon Alan
Starkey, Dr Phyllis


Miller, Andrew
Steinberg, Gerry


Mitchell, Austin
Stewart, David (Inverness E)


Moffatt, Laura
Stinchcombe, Paul


Moore, Michael
Stoate, Dr Howard


Moran, Ms Margaret
Strang, Rt Hon Dr Gavin


Morgan, Ms Julie (Cardiff N)
Stuart, Ms Gisela


Morley, Elliot
Stunell, Andrew


Morris, Rt Hon Ms Estelle (B'ham Yardley)
Taylor, Rt Hon Mrs Ann (Dewsbury)


Mountford, Kali
Taylor, Ms Dari (Stockton S)


Mudie, George
Taylor, David (NW Leics)


Mullin, Chris
Temple-Morris, Peter


Murphy, Denis (Wansbeck)
Thomas, Gareth R (Harrow W)


Murphy, Jim (Eastwood)
Thomas, Simon (Ceredigion)


O'Brien, Mike (N Warks)
Timms, Stephen


O'Hara, Eddie
Tipping, Paddy


Öpik, Lembit
Todd, Mark


Organ, Mrs Diana
Touhig, Don


Osborne, Ms Sandra
Trickett, Jon


Pearson, Ian
Truswell, Paul


Pendry, Tom
Turner, Dennis (Wolverh'ton SE)


Pickthall, Colin
Turner, Dr Desmond (Kemptown)


Pike, Peter L
Turner, Neil (Wigan)


Plaskitt, James
Twigg, Derek (Halton)


Pollard, Kerry
Tyler, Paul


Pond, Chris
Tynan, Bill


Pope, Greg
Vis, Dr Rudi


Pound, Stephen
Walley, Ms Joan


Powell, Sir Raymond
Ward, Ms Claire


Prentice, Ms Bridget (Lewisham E)
Wareing, Robert N


Prentice, Gordon (Pendle)
Watts, David


Prescott, Rt Hon John
Welsh, Andrew


Primarolo, Dawn
White, Brian


Prosser, Gwyn
Whitehead, Dr Alan


Purchase, Ken
Williams, Rt Hon Alan (Swansea W)


Quin, Rt Hon Ms Joyce



Quinn, Lawrie
Williams, Alan W (E Carmarthen)





Williams, Mrs Betty (Conwy)
Woodward, Shaun


Willis, Phil
Woolas, Phil


Wills Michael
Worthington, Tony



Wright, Anthony D (Gt Yarmouth)


Wilson, Brain
Wright, Dr Tony (Cannock)


Winnick, David



Winterton, Ms Rosie (Doncaster C)
Tellers for the Ayes:


Wise, Audrey
Mrs. Anne McGuire and


Wood, Mike
Mr. Gerry Sutcliffe.




NOES


Ainsworth, Peter (E Surrey)
Key, Robert


Amess, David
King, Rt Hon Tom (Bridgwater)


Ancram, Rt Hon Michael
Kirkbride, Miss Julie


Arbuthnot, Rt Hon James
Lait, Mrs Jacqui


Atkinson, David (Bour'mth E)
Lansley, Andrew


Baldry, Tony
Leigh, Edward


Bercow, John
Letwin, Oliver


Beresford, Sir Paul
Lewis, Dr Julian (New Forest E)


Blunt, Crispin
Lidington, David


Body, Sir Richard
Lloyd, Rt Hon Sir Peter (Fareham)


Boswell, Tim
Loughton, Tim


Bottomley, Peter (Worthing W)
Luff, Peter


Bottomley, Rt Hon Mrs Virginia
MacGregor, Rt Hon John


Brady, Graham
McIntosh, Miss Anne


Brazier, Julian
MacKay, Rt Hon Andrew


Brooke, Rt Hon Peter
Maclean, Rt Hon David


Browning, Mrs Angela
McLoughlin, Patrick


Bruce, Ian (S Dorset)
Mawhinney, Rt Hon Sir Brian


Burns, Simon
May, Mrs Theresa


Chapman, Sir Sydney (Chipping Barnet)
Moss, Malcolm



Nicholls, Patrick


Clark, Dr Michael (Rayleigh)
Norman, Archie


Clifton-Brown, Geoffrey
O'Brien, Stephen (Eddisbury)


Collins, Tim
Ottaway, Richard


Colvin, Michael
Page, Richard


Cormack, Sir Patrick
Paice, James


Cran, James
Paterson, Owen


Curry, Rt Hon David
Pickles, Eric


Davies, Quentin (Grantham)
Portillo, Rt Hon Michael


Davis, Rt Hon David (Haltemprice)
Prior, David


Day, Stephen
Randall, John


Dorrell, Rt Hon Stephen
Redwood, Rt Hon John


Duncan Smith, Iain
Robathan, Andrew


Evans, Nigel
Robertson, Laurence


Faber, David
Roe, Mrs Marion (Broxboume)


Fabricant, Michael
Rowe, Andrew (Faversham)


Fallon, Michael
Ruffley, David


Flight, Howard
St Aubyn, Nick


Forth, Rt Hon Eric
Sayeed, Jonathan


Fowler, Rt Hon Sir Norman
Shephard, Rt Hon Mrs Gillian


Garnier, Edward
Shepherd, Richard


Gibb, Nick
Spelman, Mrs Caroline


Gill, Christopher
Spteer, Sir Michael


Gillan, Mrs Cheryl
Steen, Anthony


Gorman, Mrs Teresa
Streeter, Gary


Green, Damian
Swayne, Desmond


Greenway, John
Syms, Robert


Grieve, Dominic
Tapsell, Sir Peter


Gummer, Rt Hon John
Taylor, Ian (Esher & Walton)


Hamilton, Rt Hon Sir Archie
Taylor, John M (Solihull)


Hammond, Philip
Taylor, Sir Teddy


Hayes, John
Townend, John


Heathcoat-Amory, Rt Hon David
Tredinnick, David


Hogg, Rt Hon Douglas
Trend, Michael


Horam, John
Tyrie, Andrew


Howard, Rt Hon Michael
Viggers, Peter


Howarth, Gerald (Aldershot)
Walter, Robert


Hunter, Andrew
Wardle, Charles


Jack, Rt Hon Michael
Wells, Bowen


Jackson, Robert (Wantage)
Whitney, Sir Raymond


Jenkin, Bemard
Whittingdale, John


Johnson Smith, Rt Hon Sir Geoffrey
Widdecombe, Rt Hon Miss Ann



Wilkinson, John






Winterton, Mrs Ann (Congleton)
Tellers for the Noes:


Winterton, Nicholas (Macclesfield)



Yeo, Tim
Mr. Keith Simpson and


Young, Rt Hon Sir George
Mrs. Eleanor Laing.

Question accordingly agreed to.

Bill read the Third time, and passed.

SCOTTISH GRAND COMMITTEE

Motion made, and Question put forthwith, pursuant to Standing Order No. 100(1) (Scottish Grand Committee (sittings)),
That the Scottish Grand Committee shall meet—

(1) on Tuesday 29th February at half-past Ten o'clock at Westminster to consider a substantive Motion for the adjournment of the Committee;
(2) on Wednesday 5th April at half-past Ten o'clock at Westminster to consider a substantive Motion for the adjournment of the Committee—[Mr. Betts.]

Question agreed to.

COMMITTEES

Mr. Deputy Speaker (Mr. Michael Lord): With permission, I shall put together the motions relating to Committees.

PUBLIC ADMINISTRATION

Ordered,
That Helen Jones be discharged from the Select Committee on Public Administration and Mr. Neil Turner be added to the Committee.

MODERNISATION OF THE HOUSE OF COMMONS

Ordered,
That Mr. Stephen Twigg be discharged from the Select Committee on Modernisation of the House of Commons and Ann Coffey be added to the Committee.

BROADCASTING

Ordered,
That Mr. Andrew Stunell be discharged from the Broadcasting Committee and Norman Baker be added to the Committee.

ENVIRONMENTAL AUDIT

Ordered,
That Norman Baker be discharged from the Environmental Audit Committee and Mr. Paul Keetch be added to the Committee.—[Mr. Betts.]

PETITION

Housing (Stroud)

Mr. David Drew: Thank you, Mr. Deputy Speaker. I am delighted—

Mr. Deputy Speaker (Mr. Michael Lord): Order. Hon. Members should leave the Chamber quickly and quietly so that Mr. Drew can present his petition.

Mr. Drew: I am delighted to present this petition on behalf of the residents of Hardwicke and Haresfield in my constituency. The petition states:
To the House of Commons.
The petition of residents of Hardwicke and Haresfield,
Declares that we object in the strongest terms to the planned building of over 1500 new houses on agricultural land at Colethrop farm, Haresfield, which is being imposed by the new Gloucestershire Structure Plan, together with the new Stroud District Local Plan. The effect of this concentrated building, alongside a larger development in Quedgeley will be to make existing traffic conditions, on the mainly rural roads, quite impossible to manage.
The Petitioners therefore request that the House of Commons urge the Secretary of State for the Environment, Transport and the Regions to do all within his power to cause this ill-prepared policy of centralised development to be completely reassessed.
To lie upon the Table.

Charities

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Betts.]

Helen Jones: I am grateful for the opportunity to raise the problems of Integrate Services, a charity that cares for people in Warrington with learning difficulties.
The history of the charity is complex, so I do not propose to go through all of it tonight. It has been set out clearly in an extremely helpful report, produced for the local health authority by Mrs. Glenys Marriott. However, it may help the House if I point out that Integrate Services, formerly known as Warrington Integrate, was originally set up to care for people from the old Newchurch hospital. It currently cares for about 23 residents—the number fluctuates—in eight homes in Warrington.
The charity is not, and never has been, a fund-raising body. It is entirely dependent on public money, mainly a section 64 grant from the health authority, together with social services benefits due to residents and a small amount of other income.
The difficulties surrounding the charity began to surface last year when a member of staff approached the Warrington Community Health Care trust. It immediately contacted the North Cheshire health authority which believed that the allegations were serious enough to warrant an investigation. It therefore contacted both the trustees of Integrate and the Charity Commission in May last year. The Charity Commission, however, did not begin its section 8 investigation until September and that investigation is still incomplete. I believe that the delays to which it has been subject have formed a major problem and prevented the resolution of many of the problems facing the charity.
As the number of staff expressing concerns began to increase, arrangements were made for them to make statements to solicitors under the Public Interest Disclosure Act 1998. The allegations were many, including that staffing levels at the charity were tightly controlled on financial grounds and did not change as residents' needs changed and that staffing was, in any case, too low. For example, if a resident had to attend a medical appointment, others in the home had to go with him.
Allegations were made that the chief executive and his wife, who was also employed by the charity, spent very little time in Warrington and that they claimed payments to which they were not entitled. Further allegations surrounded the use of the charity's money to fund holiday provision and the effect that that had on provision for residents. There were allegations, for example, that residents had to wear old clothes, that they were bought only the cheapest food and that they were forced to take their holidays in Integrate's holiday facilities.
The important thing is that many of those allegations have never been properly and fully investigated because the response of the trustees at the charity was, I regret to say, rather bizarre. They first commissioned two of their own number to produce a report—they were apparently oblivious of the principle that organisations do not normally investigate themselves.
The trustees' members produced a report based largely on uncorroborated statements from the chief executive. The charity still refers to that as an independent report, which I can describe only as a terminological inexactitude. It then failed to agree with the health authority on nominating an independent person acceptable to both to carry out a full investigation, and it spent a great deal of money instructing solicitors in order, I believe, to avoid an investigation.
Under pressure, however, the trustees commissioned two further reports—one from PricewaterhouseCoopers and another from Mr. Frank Watts. Copies of these—the charity's own reports—have been passed to me, and I shall refer to them later. However, the trustees refused, despite repeated requests from the health authority, to suspend the chief executive who was at the centre of many of the allegations. The decision not to suspend him was taken by a meeting of trustees at which the chief executive, his wife and Mr. Colin Fiveash, who was briefly engaged as a consultant to Integrate even though he had been dismissed from his previous post in the health service for gross misconduct, were all present. The fact that Mr. Fiveash was even employed says much about the charity.
However, before that, the chief executive had been unofficially suspended for one day. On his return, it is alleged that he broke into the charity's office and removed a large quantity of files and papers. The Charity Commission has confirmed to me that the chief executive accepts that he took away files and papers, but he says that it was for safekeeping and that he returned them later except for a few personal items. I have yet to discover why anyone would need to remove things for safekeeping when they were in a locked office or what corroborating evidence there is to show that they were all returned.
The chief executive's treatment contrasts strongly with the treatment meted out to whistleblowers at the charity. That seems to follow a pattern. Staff who blew the whistle were accused of various offences, including serious ones such as the abuse of residents and theft, despite the fact that no allegations had been made against them before they made statements about the charity. I have checked with social services in Warrington because they are serious allegations that need to be properly investigated, and they tell me that not one allegation of abuse or even improper behaviour has been proven against any of the whistleblowers at the charity. Letters from the charity, however, continue to repeat those allegations as if they were proven.
I have been passed a copy of a letter from the chief executive to the Charity Commission dated 18 January, in which he refers to allegations against a particular member of staff as being proven. The secretary of the trustees wrote to me on 31 January in similar terms. One must ask why the charity repeats those allegations. It seems to me that there was a pattern of bullying and intimidation at the charity against anyone who spoke out.
I have been contacted not only by current and recent staff, whistleblowers and non-whistleblowers, but by people who worked at Integrate some time ago, left before the allegations surfaced and now hold responsible positions elsewhere. They have confirmed to me their view that anyone who crossed the chief executive was likely to be subject to a similar campaign. Frankly, they are terrified of that man, Mr. Trevor Upshall. I do not use the word "terrified" lightly, and I did not choose to name


him in the House without careful thought, but it is the duty of Members of Parliament at least to bring such allegations into the public domain to offer some protection to those who are subject to them.
The failure to suspend the chief executive means that both reports produced for the charity are necessarily incomplete because many members of staff would not speak to the investigators while the chief executive remained in post or allow the statements made under the Public Interest Disclosure Act to be revealed to him. The investigators were also circumscribed by the brief given to them by the charity, yet their reports highlight issues of major concern.
The PricewaterhouseCoopers report makes it clear beyond doubt that there was consistent underspending on Integrate's budget year on year to build up reserves. That money had been given for the care of residents—that was its sole purpose. Yet according to the accountants, on 31 March 1999 the charity had cash at bank of £428,364, which far exceeded three months' running costs of approximately £169,000. The accountants who prepared the report questioned the need for having three months' reserves at all, since the health authority paid its grant to the charity in advance. However, that underspending is part of a pattern: in 1998–99, there was £80,923 left; in 1997–98, £214,664 was left.
The purpose of the reserves was clear. They were used to purchase holiday facilities and associated items. A cottage in Oswestry was purchased, as was a caravan, a barge and a Land Rover. Why a Land Rover? According to the charity's own reports, it was kept in Oswestry, where the charity's handyman was based, although all the charity's homes were in Warrington.
There were national lottery grants, which may now be subject to scrutiny, to refurbish the cottage and purchase what was described as a "trip boat". Other strange purchases were made, such as a massage couch, which it was alleged was kept at Mr. and Mrs. Upshall's home, and now appears to be at the holiday cottage, but is certainly nowhere near the residents.
There is clear evidence in the reports that the policy resulted from a decision of the management committee to set up what it described as a "holiday arm", and it changed the charity's objects to facilitate that. The management committee did so without notice to the health authority that funded the charity.
It has been alleged that residents were forced to take their holidays in those facilities, but it is remarkable how little the residents used them, according to the report. In 1999, the cottage was used by the residents for precisely eight weeks. On other occasions it was let to other bookings. The trip boat was used on two or possibly six occasions by residents. That is difficult to determine, because of the way in which the records were kept.
It is clear from the report that members of the management committee feared a process of attrition as residents grew older and no more were placed with them, so they deliberately used public money to acquire holiday facilities which their own accountants say were beyond those needed for residents and which Mr. Watts says "far exceed" what is reasonable. The whole purpose of the charity became the perpetuation of its own existence. Since when has that been a charitable object?
The question arises whether the beneficiaries suffered. It seems that, in some senses, they did. Mr. Watts's report states that Integrate's income suggests the expectation of a substantially greater level of staffing than he found at the charity.
Advocates now working with the residents to facilitate the changeover to a new provider have come up with some heart-rending stories. For instance, they have heard residents say that they wished they were back in Newchurch, because they were allowed day trips from there. They have heard residents say that they were not allowed certain foods, and that when Integrate's residents went to day centres, they had to take packed lunches, whereas everyone else had a cooked meal.
However, Mr. Upshall stated in a letter to the health authority in December 1997, and he also told me just after I was elected, that he had had to
reduce cover and services to residents
because the grants from the health authority had been frozen.
In a letter to staff dated 4 February this year, Mr. Upshall mentions having dealt with a member of staff who had been on duty for 24 hours. Why should that be, when the charity had built up such reserves? Why should decent staff have had to work in such conditions, when Integrate had consistently underspent its staffing budget?
While the residents lost out and staff were left to cope, the chief executive and his wife enjoyed unusually favourable terms of employment. They live in Oswestry where, by coincidence, we also find the cottage, the Land Rover, the handyman and, of course, the massage couch. A decision was taken by the trustees to use part of their property as an office base and to allow them to have their work base in Oswestry, meaning that they could claim mileage and on-call payments from Oswestry to Warrington.
Mr. Watts reports that the alleged savings from that were never quantified, nor it is clear what alternatives were considered. The arrangement was allowed, despite the fact that all letters from the charity are addressed from Lyster close, which is in my constituency, and where I know there is an office as I have been in it.
Mr. Watts also states that it is unusual for a senior officer of a charity not to be located locally and to receive on-call payments at all. He states in his report that it is difficult to see the justification for Mr. Upshall being on call, as the on-call rota for the homes was covered by the team leaders. He finds it even more difficult to see the justification for Mrs. Upshall being on the on-call rota, and that her job description seems to have been written specifically for her.
The payments that those two senior officers received were considerable. Payroll details passed to the health authority and to me cover five months from late 1998 to 1999. During that period Mr. Upshall received £13,182 net in salary and £10,398 in additional allowances, including a payment of £1,820 for what are described as "extra hours"—an unusual payment to a chief executive—and £3,203, described as holiday pay.
In the same period, Mrs. Upshaw, whose pay per hour was almost double that of other team leaders at the charity, received a salary of £11,674 and £6,575 in extra payments, which included an extra-hours payment of


£1,612 and more than £300 in holiday pay. I am a simple soul, and I do not know what holiday payments mean in the context that we are considering. It is difficult to understand how someone can receive holiday pay and on-call payments simultaneously. The health authority estimated that to earn his extra-hours payments for one month, Mr. Upshaw would have had to work 212 hours in addition to his usual 150 hours. Clearly, a superman was running the charity.
The health authority has decided to end its grant to the organisation on 31 March and to transfer to a new provider. However, lessons need to be learned, and I regret that the trustees have not learned them. A copy of the letter that the trustees sent to their solicitors was recently passed to me. In it, they asked for advice on how to exclude the health authority from discussions with the new provider,
especially when we will be discussing such points as TUPE and also our assets.
Is the organisation anxious for a smooth transfer for the benefit of its residents or concerned to preserve its assets? I suggest the latter. That is confirmed by a letter from the new chairman of trustees to the health authority. It states:
Our current strategy is to retain the organisation's non-staff assets and, subject to the consent of the Charity Commissioners, to use those assets as the basis for developing leisure-based services for disabled people.
The charity intends to set up a separate leisure organisation, using the assets that were bought with money given for the care of people in Warrington. The legal position can be debated, but the moral position is clear. The money was given for the care of a specific group of people, who should benefit from the assets. Anything else is a form of legalised asset stripping of some of the most vulnerable people in our society. It is monstrous that any charity would consider behaving in that way.
I hope that my right hon. Friend the Minister will consult his legal advisers about whether the process that I have described can be stopped before we get into a long round of legal debate, which will use up more money that should be spent on care.
I also hope that we will learn lessons from what has happened. The Charity Commissioners or social services need powers to intervene in an organisation when its management goes wrong before matters get to the stage that we are considering. There should be clearer powers of investigation when the governance of a charity is at fault. Social services can intervene only when there is danger to residents, not when they know that a problem might arise in future.
More thought should be given to training management committees. Clearly, many trustees did not understand what a section 64 grant was, their responsibilities to their employees or even the functions of different parts of the health service. We should consider carefully giving advice to trusts on the contracts that they ought to make.
Many of the schemes that I have mentioned were set up so quickly that we have never fully explored the interaction between section 64 grants and charity law. There should be clear contracts that require agreements on surpluses, properly agreed development plans, and notification of the health authority of any change in a charity's objectives.
I hope that we will seriously consider insisting on a form of independent advocacy for residents in schemes such as those operated by Integrate Services. Their residents were the most vulnerable of the vulnerable and there was no independent person to speak to them.
However, none of that would have stopped some of the trustee's actions, the purchase of holiday homes or the chief executive's remuneration package so they and the charity's management must bear a great part of the blame for what went on. I sincerely hope that the Departments concerned will look very closely at this operation and that, if another organisation is set up by the same people, they will think clearly about their advice to health and social services on whether to use such facilities. It is the duty of Members of the House to make sure that this does not happen again.

The Minister of State, Home Office (Mr. Paul Boateng): The whole House has heard my hon. Friend the Member for Warrington, North (Helen Jones), who advocated most powerfully and trenchantly the interests of one of the most vulnerable groups in our society—those living with learning disabilities—and put a proper constituency interest at the forefront. Her speech and her assiduous investigation of this matter do her great credit and are in the best traditions of the House and Adjournment debates such as this.
My hon. Friend has raised those issues outside the Chamber with me, with the Minister of State, Department of Health—my hon. Friend the Member for Barrow and Furness (Mr. Hutton)—and with our officials. I am glad that she is meeting the chief Charity Commissioner next week as she will have the opportunity to raise with him some of the detailed points that she has shared with us tonight. I know that he is looking forward to the meeting, which will greatly assist the commission in fulfilling its responsibilities under charity law.
The whole House will be aware that each of our constituencies contains a number of small and medium-sized voluntary organisations and charities that provide a range of services to the national health service, local authorities and other statutory bodies. They are an enormously important part of the infrastructure of our communities and the Government recognise and value the role of the voluntary sector. In the millennium year in particular—in which we are focusing on the concept of an active community—it is important to pay tribute to its work, but it is also important to emphasise, as my hon. Friend has done, that transparency of operation and accountability are essential. The sector must show good governance at every level. That is a particular responsibility for trustees and their officials, chief executives and staff and they must take it seriously.
Similarly, those who fund such bodies are responsible for having in place proper mechanisms for holding them to account for public money. I know that my hon. Friend the Minister of State will look carefully into the concerns that my hon. Friend raised about the way in which services were provided by Integrate Services and financed by the health authority. He will have in mind—as we all do in government—the importance of public money being used properly. He will want to be satisfied that that money has been properly accounted for, and that the interests of the patients and those receiving care have held primacy


of place at all times. It is the particular responsibility of the health authority in this instance and of funding bodies generally, to ensure that that is so.
There is a role for social services in assessing the quality of care, and it is important to draw my hon. Friend's remarks to the attention of the health authority and the relevant social services department to ensure that they are fully acquainted with the facts and the concerns that have been raised in the Chamber tonight.
I should like to say a few words about the particular role of charity law and the way in which the Charity Commission has acted in this case. The Charity Commission was first told of the allegations last year, when these problems were brought to its attention. It was made aware of the serious allegations about the conduct of the chief executive and possible financial irregularities.
The charity's trustees commissioned a series of reports into those allegations. The commission received those reports in September 1999, and on 23 September opened

a formal inquiry under section 8 of the Charities Act 1960. That inquiry obviously cannot cover matters outside the commission's jurisdiction, which is limited to the oversight of charity law. Issues relating to employment and care fall outside its jurisdiction. I assure my hon. Friend that the commission will not hesitate to use all the powers at its disposal to safeguard charitable funds and to ensure that all the papers and evidence that it ought to have sight of are made available to it.
The commission is looking into the allegations of misappropriation of the charity's assets and financial impropriety. I cannot anticipate the inquiry's conclusions, but I understand that it is almost complete. It is vital that public confidence in the voluntary sector is maintained by ensuring that such inquiries are robust, and that their outcome is properly made known.

Question put and agreed to.

Adjourned accordingly at seventeen minutes to Eleven o'clock.